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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 8, 1999
REGISTRATION NO. 333-79887
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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VISUAL DATA CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
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<S> <C> <C>
FLORIDA 2741 65-0420146
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Number) identification No.)
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1291 SW 29TH AVENUE
POMPANO BEACH, FLORIDA 33069
(954) 917-6655
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
---------------------
RANDY S. SELMAN
VISUAL DATA CORPORATION
1291 SW 29TH AVENUE
POMPANO BEACH, FLORIDA 33069
(954) 917-6655
TELECOPIER: (954) 917-6660
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
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WITH COPIES TO:
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JOEL D. MAYERSOHN, ESQ. STEPHEN WEISS, ESQ.
MATTHEW W. MILLER, ESQ. FRANK IOPPOLO, JR., ESQ.
ATLAS, PEARLMAN, TROP & BORKSON, P.A. GREENBERG TRAURIG
200 EAST LAS OLAS BLVD., SUITE 1900 200 PARK AVENUE
FORT LAUDERDALE, FLORIDA 33301 NEW YORK, NEW YORK 10166
(954) 763-1200 (212) 801-9200
TELECOPIER: (954) 766-7800 TELECOPIER: (212) 801-6400
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) REGISTRATION FEE
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Common Stock, $.0001 par value.......... 2,300,000 $23.125 $53,475,000 $14,870
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(1) Includes up to 300,000 shares of common stock which the underwriters have
the option to purchase from selling shareholders to cover over-allotments,
if any. See "Underwriting."
(2) Estimated solely for the purpose of determining the registration fee in
accordance with Rule 457 under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY SECURITIES IN
ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS
SUBJECT TO COMPLETION, DATED JULY 8, 1999
2,000,000 Shares of Common Stock
(VISUAL DATA CORP LOGO)
-------------------------
We are a leading producer and owner of original video content specifically
developed for the Internet and interactive television. We are also an aggregator
and broadcaster of rich media (audio and visual) content.
We are selling 1,600,000 shares of common stock and the selling
shareholders are selling 400,000 shares of common stock. We will not receive any
of the proceeds from the shares sold by the selling shareholders.
Our shares are listed for trading on the Nasdaq SmallCap Market under the
symbol "VDAT." We have applied for listing of our shares on the Nasdaq National
Market under the same symbol. On July 2, 1999, the last reported closing bid
price for our common stock on the Nasdaq SmallCap Market was $20.375.
INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS" ON
PAGE 8.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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PER SHARE TOTAL
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Public Offering Price....................................... $ $
Underwriting Discounts and Commissions...................... $ $
Proceeds to Visual Data Corporation......................... $ $
Proceeds to Selling Shareholders............................ $ $
</TABLE>
The underwriters may, under some circumstances, for 45 days after the date
of this prospectus, purchase up to an additional 300,000 shares of common stock
from the selling shareholders at the public offering price, less underwriting
discounts and commissions.
The underwriters expect to deliver the shares of common stock at the
offices of in New York, New York, on or about ,
1999, against payment in immediately available funds.
[Cruttenden Roth Logo] [H.C. Wainwright & Co. Logo]
Prospectus dated , 1999
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You should rely only on the information contained in this document or other
documents which we have referred you. We have not authorized anyone to provide
you with information that is different. This document may be used only where it
is legal to sell these securities. The information may only be accurate as of
the date of this document. Information on our Website does not constitute part
of this document.
IN CONNECTION WITH AN UNDERWRITTEN OFFERING, THE SECURITIES AND EXCHANGE
COMMISSION RULES PERMIT THE UNDERWRITERS TO ENGAGE IN TRANSACTIONS THAT
STABILIZE THE PRICE OF OUR SECURITIES. THESE TRANSACTIONS MAY INCLUDE, AMONG
OTHER THINGS, PURCHASES FOR THE PURPOSE OF FIXING OR MAINTAINING THE PRICE OF
OUR SECURITIES AT A LEVEL THAT IS HIGHER THAN THE MARKET WOULD DICTATE IN THE
ABSENCE OF SUCH TRANSACTIONS. WE DO NOT KNOW WHETHER THE UNDERWRITERS WILL
ENGAGE IN ANY TRANSACTIONS OF THAT SORT. IF THE UNDERWRITERS ENGAGE IN ANY
TRANSACTIONS OF THAT TYPE THEY MAY DISCONTINUE THEM AT ANY TIME.
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TABLE OF CONTENTS
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Prospectus Summary.................. 3
Risk Factors........................ 8
Use of Proceeds..................... 17
Price Range of Securities........... 17
Dividend Policy..................... 18
Capitalization...................... 19
Dilution............................ 20
Selected Consolidated Financial
Data.............................. 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 22
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Business............................ 28
Management.......................... 43
Certain Transactions................ 53
Principal and Selling
Shareholders...................... 54
Description of Securities........... 56
Underwriting........................ 59
Legal Matters....................... 62
Experts............................. 62
Available Information............... 63
Index to Consolidated Financial
Statements........................ F-1
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PROSPECTUS SUMMARY
You should read the following summary in conjunction with the more detailed
information regarding our company and the common stock being sold in this
offering and our consolidated financial statements and related notes thereto
appearing elsewhere in this prospectus. Because this is only a summary, you
should read the rest of this prospectus before you invest in our common stock.
Read the entire prospectus carefully, especially the risks described under "Risk
Factors."
Except as noted, all of the information in this prospectus assumes no
exercise of (i) all options and warrants currently outstanding (including those
options to be exercised by selling shareholders), and (ii) all publicly-traded
warrants. All references to our fiscal year means our year ending September 30.
OUR COMPANY
OVERVIEW
We produce and own original video content specifically developed for the
Internet and interactive television. We are also a full service production and
distribution company capable of aggregating, broadcasting and globally
transmitting rich media (audio and video) content. Our content includes video
libraries on topics such as travel, corporate information and healthcare. Our
growing portfolio of full-motion video information libraries is designed to
target specific audiences in order to generate revenues from advertising,
subscriptions, viewership, e-commerce and sponsorships. In order to enhance our
marketing efforts, we have developed strategic partnerships with companies such
as Carlson Travel Group, Inc., Interval International, Inc., Broadcast.com,
Inc., InterVu, Inc., PR Newswire Corporation, Canada Newswire, Ltd.,
REZsolutions Inc., Physicians' Online, Inc., Inteli-Health, Inc. and
Pegasus/TravelWeb.
We have a worldwide network of professional freelance camera crews and
production capabilities. We are able to shoot the video, edit it in-house
utilizing the latest technology (digital, nonlinear video editing systems) and
distribute the finished product on the Internet. By owning our content and the
means of production, we are able to package and deliver the same content in a
multitude of different forms, maintain high production quality and consistency
and be price competitive, thereby effectively addressing the diverse needs of
our Internet customers. By using the latest available technology for
distribution of our content, we become partners, not competitors, with streaming
video Internet companies and network providers.
We also own a 51% equity interest in Entertainment Digital Network, Inc.
(OTCBB: DNET). EDnet develops and markets integrated systems for the delivery,
storage and management of professional quality digital communications for
media-based applications, including audio and video production for the North
American advertising and entertainment industry. EDnet uses regional telephone
companies, satellite operators and independent fiber optic telecommunications
providers, which enables the exchange of high quality audio, compressed video
and multimedia data communications. EDnet provides engineering services,
application-specific technical advice, and audio, video and networking hardware
and software to its client base of approximately 500 companies, including
LucasFilms Skywalker Division, Sony Entertainment, Disney, MGM, Capitol Studios,
Warner Brothers, NFL Films and PGA Tour Productions. EDnet's recent projects
included the transmission of digitized audio during the post-production of such
feature films as Titanic, Antz, Saving Private Ryan and the new Star Wars
prequel, The Phantom Menace. In addition to revenues generated from our core
businesses, we recorded revenues
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in fiscal 1998 from equipment sales, installation and usage fees, as well as web
design and consulting fees from our majority owned subsidiary EDnet. We
anticipate that the majority of our future revenues will be generated from the
development, production and distribution of our original content through our
libraries and other sources associated with the content and its channels of
distribution. These other sources of revenue associated with the distribution of
the content will include per view and tuition charges, usage and booking fees,
syndication and royalty fees, advertising and sponsorship revenues, as well as
e-commerce transactions.
THE VISUAL DATA LIBRARIES
Our full-motion video libraries contain vignettes which are two to four
minutes in length and provide the viewer with a multimedia video tour or
overview of the specific facility, attraction or information being featured. Our
existing libraries include:
- HotelView (www.hotelview.com) -- hotels worldwide
- ResortView (www.resortview.com) -- timeshare resorts
- AttractionView (www.attractionview.com) -- attractions and theme parks
- CareView (www.careview.com) -- nursing homes and assisted living
facilities
- VideoNewsWire (www.videonewswire.com) -- video press releases
- MedicalView (www.medicalview.com) -- health care information library
- TalentView (www.talentview.com) -- audio library of professional voice
talent
Additional libraries currently under development include ProductView,
CampusView, CruiseView, DestinationView and GolfCourseView.
THE OPPORTUNITY AND OUR STRATEGY
Broadcasting digital based audio and video content over the Internet offers
distinct advantages over geographically limited radio and television analog
technology. Most notably with the development of streaming media products, the
Internet has evolved from a mass of static, text oriented web pages and e-mail
services to an environment capable of delivering live broadcasts of graphical,
instructive and multimedia content. We believe that the proposed convergence of
television, cable, telephone and Internet technologies in recently announced
national transactions will create an even greater demand for our audio and video
content, as viewers seek access to information of interest on a real time basis
directly from their home and business communication centers.
Our strategy is to establish ourselves as the leading Internet developer
and owner of video content. In addition, we want to become the leading provider
of Internet based video production and broadcast services. The key components to
achieving these goals include the following:
- expand our existing video "View" libraries;
- develop new video topical libraries focusing on areas such as education
and consumer products;
- expand our business to business production services;
- leverage strategic relationships; and
- make synergistic acquisitions.
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If we successfully implement our strategy, we believe that we will not only
maintain our competitive advantage, but will establish a standard for the future
design and production of original video content for the Internet.
RECENT DEVELOPMENTS
Since the end of our last fiscal year, we have developed a variety of new
Internet products and services. These include:
- During the first quarter of fiscal 1999, we began offering a new service
to provide our clients with live audio and video event broadcast
capabilities via the Internet, by combining EDnet's worldwide high speed
data networks and our network of camera crews. This service is being
marketed through our partnership with PR Newswire.
- During the second quarter of fiscal 1999, we began creating and
distributing Internet-based video programs for physicians, health care
professionals and consumers. We are distributing this content through
Inteli-Health and have a distribution agreement with Physicians' Online.
Physicians' Online is one of the largest Internet communities of doctors
with over 170,000 physicians subscribing to its on-line service.
Inteli-Health is a joint venture between Aetna U.S. Healthcare and Johns
Hopkins University Medical School which provides consumer health
information to the general public and health care community.
- In March 1999, we launched VideoViewer (www.videoviewer.com), our
interactive video-on-demand network for high bandwidth Internet users,
designed to offer programming on a variety of subjects, including travel,
health care, business and finance, and entertainment.
- In March 1999, we launched our TalentView(TM) website, providing the
entertainment and advertising industry with an interactive multimedia
database of professional voice performers working in film, television,
radio and other media.
- In April 1999, we acquired the Internet broadcast rights to a collection
of golf-related videos, including approximately 200 course tours,
instructional videos and golf-related attractions.
- In April 1999, our EDnet subsidiary introduced new services including a
high quality video delivery system and video network. Using Telestream
Corporation's new ClipMail Pro, we are providing high speed bandwidth
connections via DSL and frame relay T1 for our clients.
OUR HISTORY AND STRUCTURE
We were incorporated in Florida in May 1993 and began operations in October
1993. Our principal executive offices are located at 1291 SW 29th Avenue,
Pompano Beach, Florida 33069. Our telephone number is 954-917-6655. Our websites
are located at www.vdat.com, www.videoviewer.com, www.hotelview.com,
www.resortview.com, www.attractionview.com, www.careview.com,
www.videonewswire.com, www.medicalview.com, and www.talentview.com. Information
contained on our Websites is not part of this prospectus. When we use the terms
"Visual Data," "we," "our" and similar terms, this includes Visual Data
Corporation and our subsidiaries, HotelView Corporation, CareView Corporation,
VideoNews Wire Corporation, ResortView Corporation, Medical View Corporation and
InternetChef.com Corporation, as well as Entertainment Digital Network, Inc.,
our 51% owned subsidiary.
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THE OFFERING
Common Stock Offered............ 2,000,000 shares, consisting of 1,600,000
shares offered by Visual Data Corporation
and 400,000 shares offered by selling
shareholders(1)
Common Stock Outstanding After
this Offering................. 8,230,019 shares(2)
Risk Factors.................... You should consider the risks of investing
in our common stock and the impact from
various events which could affect our
business, see "Risk Factors" and "Certain
Transactions."
Use of Proceeds................. To expand and enhance our eight existing
libraries, create new libraries, purchase
additional production equipment and upgrade
our studios, and for working capital
purposes, including acquisitions. See "Use
of Proceeds."
Nasdaq SmallCap Market Symbols
and Proposed Nasdaq National
Market Symbols:
Common Stock.................... "VDAT"
Warrants........................ "VDATW"
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(1) This amount does not include the exercise of the underwriters'
over-allotment option which shares may be purchased from selling
shareholders. If the over-allotment option is exercised in full the number
of shares of common stock offered would be 2,300,000 shares.
(2) Excludes 1,436,701 warrants and 5,126,239 options to purchase common stock
exercisable at a weighted average of $5.95 and $5.171 per share,
respectively.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These forward-looking
statements are not historical facts, but rather are based on our current
expectations, estimates and projections about our industry, beliefs and
assumptions. Words such as "anticipates," "expects," "intends," "plans,"
"believes," "seeks," "estimates" and similar expressions are intended to
identify forward-looking statements. These statements are not guarantees of
future performance and are subject to certain risks, uncertainties and other
factors, some of which are beyond our control, are difficult to predict and
could cause actual results to differ materially from those expressed or
forecasted in the forward-looking statements. These risks and uncertainties are
described in "Risk Factors" and elsewhere in this prospectus. We caution you not
to place undue reliance on these forward-looking statements, which reflect our
management's view only as of the date of this prospectus. We are not obligated
to update these statements or publicly release the result of any revisions to
them to reflect events or circumstances after the date of this prospectus or to
reflect the occurrence of unanticipated events.
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SUMMARY CONSOLIDATED FINANCIAL DATA
The following summary consolidated financial and operating data has been
derived from our consolidated financial statements for the periods indicated.
The following financial data should be read in conjunction with our Consolidated
Financial Statements and Notes and Management's Discussion and Analysis of
Financial Condition and Results of Operations included elsewhere in this
prospectus.
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SIX MONTHS ENDED
FISCAL YEAR ENDED SEPTEMBER 30, MARCH 31,
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1996 1997 1998 1998 1999
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(UNAUDITED) (UNAUDITED)
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STATEMENT OF
OPERATIONS DATA:
Operating
revenue(1)......... $ 111,719 $ 193,038 $ 1,880,842 $ 489,041 $ 2,117,901
Net loss............. $(1,891,702) $(3,573,962) $(3,434,595) $(1,098,496) $(2,823,569)
Net loss per common
share
outstanding --
basic and diluted.. $ (1.35) $ (1.42) $ (1.06) $ (0.36) $ (0.58)
Weighted average
shares of common
stock outstanding.. 1,405,228 2,509,249 3,253,731 3,078,585 4,893,186
</TABLE>
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MARCH 31, 1999
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ACTUAL AS ADJUSTED(2)
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(UNAUDITED)
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BALANCE SHEET DATA:
Working capital.................................... $3,081,931 $32,197,931
Total assets....................................... $8,721,993 $37,837,993
Long-term debt..................................... $ 688,797 $ 688,797
Stockholders' equity............................... $6,028,063 $35,144,063
</TABLE>
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(1) Operating revenue for the fiscal year ended September 30, 1998 and the six
months ended March 31, 1999 include $1,340,602 and $1,891,930, respectively,
derived from our EDnet subsidiary.
(2) These amounts show the effect of the sale of 1,600,000 shares of common
stock offered in this offering at an assumed offering price of $20.375 per
share and our receipt of the net proceeds from this offering.
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RISK FACTORS
You should carefully consider the risks described below before making a
decision to invest in Visual Data. the consequences of any of these risks could
materially and adversely affect our business, financial condition or results of
future operations. in such case, the trading price of our common stock could
decline, and you may lose all or part of your investment.
WE HAVE AN ACCUMULATED DEFICIT AND WE ANTICIPATE CONTINUING LOSSES
We continue to incur operating losses. For the years ended September 30,
1997 and 1998, we incurred losses of $3,573,962 and $3,434,595, respectively.
For the six months ended March 31, 1999, we reported a net loss (unaudited) of
$2,823,569 and had an accumulated deficit as at March 31, 1999 of $12,434,194.
Our operating expenses have increased and can be expected to increase
significantly in connection with our recent acquisitions and continued proposed
expansion. As a result, our future profitability will depend on substantial
increases in revenues from operations. Future events, including unanticipated
expenses, increased competition or inability to effectively integrate our
acquisitions, could have a material adverse effect on our operating margins and
results of operations. Accordingly, we may experience significant liquidity and
cash flow problems if we are not able to raise additional capital as needed.
There can be no assurance that future revenues will grow sufficiently to
generate a positive cash flow or otherwise enable us to be profitable.
BECAUSE WE HAVE BEEN IN BUSINESS FOR A SHORT PERIOD OF TIME, THERE IS LIMITED
INFORMATION UPON WHICH INVESTORS CAN EVALUATE OUR BUSINESS
Although we have developed a number of strategic partnerships to market our
video libraries and other products and services, we are still an early stage
business. Consequently, we have a very limited operating history upon which you
may base an evaluation of us and determine our prospects for achieving our
intended business objectives. We are prone to all of the risks inherent to the
establishment of any new business venture. You should consider the likelihood of
our future success to be highly speculative in light of our limited operating
history, as well as the limited resources, problems, expenses, risks, and
complications frequently encountered by similarly situated companies in the
early stages of development, particularly companies in the new and rapidly
changing Internet market. To address these risks, we must, among other things:
- implement and successfully execute our business and marketing strategy;
- continually update and improve our video libraries and other product and
service offerings;
- continue to develop and upgrade our technology;
- increase our client base;
- respond to competitive developments; and
- attract, retain, and motivate qualified personnel.
We may not be successful in addressing these risks, and our failure in this
regard could have a material adverse effect on our business, prospects,
financial condition, and results of operations.
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FLUCTUATIONS IN OUR OPERATING RESULTS MAY AFFECT OUR STOCK PRICE
We expect to experience significant fluctuations in our future quarterly
operating results due to a variety of factors, many of which are outside our
control. Factors that may adversely affect our quarterly operating results
include:
- the announcement or introduction of new services and products by us and
our competitors;
- our ability to upgrade and develop our systems in a timely and effective
manner;
- our ability to retain existing clients and attract new clients at a
steady rate, and maintain client satisfaction;
- the level of use of the Internet and online services and the rate of
market acceptance of the Internet and other online services for
transacting business;
- technical difficulties, system downtime, or Internet brownouts;
- the amount and timing of operating costs and capital expenditures
relating to expansion of our business and operations;
- government regulation; and
- general economic conditions and economic conditions specific to the
Internet and e-commerce.
As a result of these factors, in one or more future quarters, our operating
results may fall below the expectations of securities analysts and investors. In
this event, the market price of our common stock would likely be materially
adversely affected.
WE CANNOT PREDICT OUR FUTURE REVENUES OR WHETHER OUR PRODUCTS WILL BE ACCEPTED
We have only recently developed and began marketing our information
libraries and other products and services, and, to date, our revenues from these
sources have been negligible (approximately $540,000 and $225,000 for the year
ended September 30, 1998 and for the six months ended March 31, 1999,
respectively). In addition, the markets for our information libraries and other
products and services have only recently begun to develop, are rapidly evolving
and are increasingly competitive. Demand and market acceptance for recently
introduced products and services are subject to a high level of uncertainty and
risk. It is difficult to predict whether, or how fast, these markets will grow.
We cannot guarantee either that the demand for our information libraries and
other products and services will continue to develop or that such demand will be
sustainable. If the market develops more slowly than expected or becomes
saturated with our competitors' products and services, or do not sustain market
acceptance, our business, operating results, and financial condition will be
materially and adversely affected.
WE MAY NOT BE ABLE TO IDENTIFY AND DEVELOP NEW LIBRARIES THAT WILL HAVE BROAD
APPEAL
A key element of our strategy involves the development of information
libraries targeted for specific interest areas, demographic groups and
geographic areas. We cannot guarantee that we will be successful in our efforts
to select and target particular areas of interest which have broad appeal. Any
failure by us to develop and maintain high-quality, up to date and successful
information libraries could materially and adversely affect our business,
operating results and financial condition.
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Even as we grow our business, potential profitability may be adversely
affected by revenue recognition methods.
Our revenue is recognized dependent upon the nature of products and
services provided as well as the terms of our contracts with our strategic
partners and clients. Increasing the number of contracts signed may not
proportionally increase our revenues and may affect the timing and extent of our
future profitability.
WE DEPEND ON THE INTERNET
We will not be able to execute our business plan if Internet usage does not
grow. Internet usage may be inhibited for any of the following reasons:
- the Internet infrastructure may not be able to support the demands placed
on it and its performance and reliability may decline as usage increases;
- security and authentication concerns with respect to the transmission
over the Internet of confidential information such as credit card
numbers, and attempts by unauthorized computer users, so-called hackers,
to penetrate online security systems; and
- privacy concerns, including those related to the ability of websites to
gather user information.
WE DEPEND ON THIRD PARTY PROVIDERS AND WEBSITE OPERATORS
Many of the Internet service providers, online service providers and other
website operators on which we depend have experienced significant service
slowdowns, malfunctions, outages and capacity limitations. We also depend on the
reliability, speed, data capacity, ease of use, accessibility and security of
the Internet as well as the Internet's continued development and acceptance for
commercial use generally. A satisfactory Internet experience may depend, as
well, on the proper functioning and continued development of equipment such as
high speed modems and personal computers. New protocols or standards are being
developed to handle new systems and increased level of activity at higher speeds
in compliance with governmental regulations. However, not all software and
equipment protocols and standards are compatible. Users may experience
difficulties due to computer-related, telecommunications or other equipment,
software, or system failures or shortcomings unrelated to our services. If users
experience such difficulties, our reputation could be harmed.
WE ARE DEPENDENT ON CONTRACTS, SOME OF WHICH ARE SHORT TERM
We are dependent upon contracts with our strategic partners and clients
including Interval International, Inc., InterVu, Inc. and PR Newswire
Corporation. These contracts are generally for terms ranging from one to two
years, however, many of them permit our clients and partners to terminate their
agreements with us on short term notice. The termination of certain of these
contracts could have a material adverse effect on our business operations and
prospects.
THERE ARE RISKS RELATED TO OUR ACQUISITION STRATEGY
Our goal is to establish ourselves as the leading developer and owner of
video content for the Internet and interactive TV. One of our strategies to
accomplish this goal is to increase revenues and the markets we serve in part
through the acquisition of companies that can further our business plan.
Acquisition candidates include developers of video
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<PAGE> 12
media. In pursuing this strategy, we must address and overcome various factors,
including the following, some of which are beyond our control:
- We may be unable to identify, acquire or profitably manage additional
companies or successfully integrate the operations of additional
companies into ours without encountering substantial costs, delays or
other problems.
- Companies acquired by us in the future may not achieve a level of
profitability that justifies our investment in them, or these acquired
companies may have unknown liabilities that could materially adversely
affect our results of operations or financial condition.
- We may compete for acquisition and expansion opportunities with companies
that have greater resources than ours and, therefore, we may not be able
to find suitable acquisition candidates. Financing for these
acquisitions, if needed, may not be obtainable on terms acceptable to us.
- We may not be able to successfully and profitably integrate these
acquired companies into our operations.
- Our results of operations in fiscal quarters immediately following a
material acquisition may be materially adversely affected while we
integrate the acquired business into our existing operations.
- We may acquire certain businesses that have either been unprofitable or
that have had inconsistent profitability prior to their acquisition. Our
inability to improve the profitability of these acquired businesses could
have a material adverse effect on us.
- Our acquisition strategy places significant demands on our resources and
there can be no assurance that our management, operational systems and
structure can be expanded to effectively support our continued
acquisition strategy.
If we are unable to implement successfully our acquisition strategy, this
inability may have a material adverse effect on our business, results of
operations or financial condition.
WE DEPEND ON MANAGEMENT TO INTEGRATE OUR ACQUISITIONS AND TO MANAGE OUR GROWTH
Our business strategy includes growth through acquisition and internal
development. We are subject to various risks associated with our growth
strategy, including the risk that we will be unable to identify and recruit
suitable acquisition candidates in the future or to integrate and manage the
acquired companies.
We completed the acquisition of 51% of EDnet and are in the process of
integrating these operations. EDnet's history, geographical location, business
model and business culture are different from ours in many respects. Our
directors and senior management face a significant challenge in their efforts to
integrate our businesses and the business of the acquired companies or assets,
and to effectively manage our continued growth. There can be no assurance that
our efforts to integrate the operations of EDnet and the acquired assets will be
successful, that we can manage our growth or that the anticipated benefits of
EDnet or its assets will be fully realized. The dedication of management
resources to such efforts may detract attention from our day-to-day business.
There can be no assurance that there will not be substantial costs associated
with such activities or of the success of our integration efforts, either of
which could have a material adverse effect on our operating results.
11
<PAGE> 13
WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY IN OUR INDUSTRY
The market for broadcast services and video content on the Internet is
rapidly evolving, highly fragmented and intensely competitive. We compete on the
Internet with:
- other online video content Websites;
- video conferencing companies and audio conferencing companies;
- Internet business services;
- online services, other Website operators; and
- Internet portal services, Internet broadcasting and other Internet
content providers.
Some of our principal competitors include other online broadcast service
websites, such as TVontheWeb and FasTV, Inc. Many of these existing and
potential competitors have a stronger position in certain markets and
significantly greater financial, technical and marketing resources than we do.
We believe that in order to attract the maximum amount of traffic to our
Websites and increase our clients' customer base, we must establish ourselves as
the leading producer and owner of original video content on the Internet. If we
fail to do so quickly, competitors may prevent us from obtaining a leading
market position, which would adversely affect our business.
WE MAY NEED ADDITIONAL FINANCING
We believe that our cash on hand, our banking arrangements and the proceeds
from this offering will be sufficient to fund our working capital, anticipated
operating cash flow deficit and capital expenditure requirements for at least 24
months following completion of this offering. Our future capital requirements,
however, depend on a number of factors, including our ability to grow our
revenues and manage our business.
Accordingly, we may need to raise additional funds in order to grow our
business and pursue new expansion opportunities. Our business could suffer if we
are unable to raise such additional funds on acceptable terms, or at all.
WE MAY NOT BE ABLE TO OBTAIN ADDITIONAL CAPITAL ON ACCEPTABLE TERMS
Our acquisition and internal growth strategy requires substantial capital
investment. Capital is typically needed not only for the acquisition of
additional companies, but also for the effective integration, operation and
expansion of these businesses. Capital is also necessary for the production and
marketing of additional on-line multi-media libraries. Therefore, our growth may
depend upon our ability to raise additional capital, possibly through the
issuance of long-term or short-term indebtedness or the issuance of our equity
securities in private or public transactions. This will likely result in
dilution of existing equity positions or increased interest expense. There can
be no assurance that acceptable financing for future acquisitions or for the
integration and expansion of existing operations can be obtained on suitable
terms, if at all.
If we raise additional funds through the issuance of equity or convertible
debt securities, the percentage ownership of Visual Data held by existing
shareholders will be reduced and those shareholders may experience significant
additional dilution. In addition, new securities may contain certain rights,
preferences or privileges that are senior to those of our common stock.
12
<PAGE> 14
WE DEPEND UPON KEY PERSONNEL
Implementation of our business strategy is largely dependent on the efforts
of a few senior officers. In particular, our operations are dependent to a great
degree on the efforts of our President and Chief Executive Officer, Randy S.
Selman, and our Executive Vice President, Alan M. Saperstein. Furthermore, we
will likely be dependent on the senior management of EDnet and other companies
that we acquire. Competition for highly qualified personnel is intense, and the
loss of any executive officer or other key employee, or the failure to attract
and retain other skilled employees, could have a material adverse effect upon
our business, results of operations or financial condition. We are parties to
employment agreements with each of Messrs. Selman and Saperstein which terminate
in January 2001, and are the designated beneficiary of key man life insurance in
the amount of $1,000,000 on the life of Mr. Selman and $500,000 on the life of
Mr. Saperstein. There can be no assurance, however, that such executives will
continue to perform under these agreements or that we can maintain the polices
in effect or that the coverage will be sufficient to compensate us for the loss
of the services of either Mr. Selman or Mr. Saperstein.
WE MAY BECOME SUBJECT TO BURDENSOME GOVERNMENT REGULATION
There are currently few laws or regulations directly attributable to access
to or commerce on the Internet. Due to the increasing popularity and use of the
Internet, it is possible that laws and regulations may be adopted covering
issues such as privacy, defamation, pricing, taxation, content regulation,
quality of products and services, and intellectual property ownership and
infringement. Such legislation could dampen the growth in, and the use of, the
Internet, decrease the acceptance of the Internet as a communications and
commercial medium, or require us to incur significant expense in complying with
any new regulation. Several telecommunications companies have petitioned the
Federal Communications Commission to regulate Internet Service Providers and
online service providers in a manner similar to long distance telephone carriers
and to impose access fees on these companies. This could increase the cost of
transmitting data over the Internet. Any new laws or regulations related to the
Internet could have a material adverse effect on our business.
MISAPPROPRIATION OF OUR INTELLECTUAL PROPERTY COULD IMPACT OUR COMPETITIVE
POSITION
Our success and ability to compete is dependent in part on the protection
of our original content for the Internet and on the goodwill associated with our
trademarks, trade names and trade secrets. A substantial amount of uncertainty
exists concerning the application of copyright laws to the Internet, and there
can be no assurance that existing laws will provide adequate protection for our
original content. In addition, because copyright laws do not prohibit
independent development of similar content, there can be no assurance that
copyright laws will provide us with any competitive advantage.
We rely on trade secret and copyright laws to protect our proprietary
technologies. There can be no assurance that these laws will provide sufficient
protection to us, that others will not develop technologies that are similar or
superior to ours, or that third parties will not copy or otherwise obtain and
use our technologies without authorization.
Policing unauthorized use of our proprietary technology and other
intellectual property rights could entail significant expense and could be
difficult or impossible, particularly
13
<PAGE> 15
given the global nature of the Internet and the fact that the laws of other
countries may afford us little or no effective protection of our intellectual
property.
In addition, we rely on certain technology licensed from third parties and
may be required to license additional technology in the future for use in
managing our website and providing related services to our customers and other
users of our website. There can be no assurance that these third-party
technology licenses will be available or will continue to be available to us on
acceptable commercial terms, or at all. If we are unable to enter into and
maintain any of these technology licenses, it could have a material adverse
effect on our business.
OTHER COMPANIES MAY CLAIM WE ARE INFRINGING UPON THEIR PROPRIETARY TECHNOLOGY
Given the nature of our business, we can not give assurance that third
parties will not bring claims of copyright or trademark infringement against us
or that they will not claim that our use of certain technologies violates a
patent. Further, there can be no assurance that third parties will not claim
that we have misappropriated their creative ideas or formats or otherwise
infringed on their proprietary rights in connection with our Internet content.
We are not currently aware of any litigation. However, any claims of
infringement, with or without merit, could be time consuming to defend, result
in costly litigation, divert management's attention, require us to enter into
costly royalty or licensing arrangements, or prevent us from using important
technologies or methods, any of which could have a material adverse effect on
our business.
THE EXERCISE OF OPTIONS AND WARRANTS WILL HAVE DILUTIVE EFFECT
As of May 20, 1999 we had outstanding options and warrants to purchase a
total of 6,562,940 shares of our common stock at prices ranging between $.00016
and $18.00 per share, including 3,399,460 options and warrants issued to
directors and executive officers. The existence of such options and warrants may
adversely affect the terms under which we could obtain additional equity
capital. The exercise of these warrants and options may materially adversely
affect the market price of our common stock.
OUR DISCRETION IN THE USE OF PROCEEDS FROM THIS OFFERING
We have not designated any specific use for a portion of the net proceeds
from this offering. Therefore, our management will have some flexibility in
applying the net proceeds. We expect to use the proceeds for the expansion of
existing libraries and the development of additional libraries, to purchase
production equipment and upgrade existing studios, and for general corporate
purposes that may include financing acquisitions, joint ventures and strategic
alliances. We have no present plans or commitments and are not currently engaged
in any negotiations with respect to acquisitions, joint ventures and strategic
alliances. Our management's failure to apply these funds effectively could cause
our business to suffer.
SHARES ELIGIBLE FOR FUTURE SALE, EXPIRATION OF LOCK-UP PERIODS
As of May 20, 1999, there were 6,630,019 shares of our common stock
outstanding, of which approximately 2,020,035 were "restricted securities" as
that term is defined by Rule 144 under the Securities Act. Such shares will be
eligible for public sale only if registered under the Securities Act or if sold
in accordance with Rule 144. Under Rule 144, a person who is not our affiliate
and who has held restricted securities for a period of one year may sell a
limited number of shares to the public in ordinary brokerage
14
<PAGE> 16
transactions. Sales under Rule 144 may have a depressive effect on the market
price of the common stock due to the potential increased number of publicly held
securities. The timing and amount of sales of common stock covered by this
prospectus, as well as sales pursuant to other filed registration statements,
could also have a negative impact on the market price of the common stock. The
market price of our common stock could decline as a result of a large number of
shares of our common stock in the market after this offering, or the perception
that these sales could occur. These sales also might make it more difficult for
us to sell equity securities in the future at a time and at a price that we deem
appropriate.
The underwriter in our initial public offering imposed lock-ups of certain
shares of our common stock held by insiders and other shareholders for periods
of 12, 18 and 24 months. All of such shares subject to the lock-up, with the
exception of 1,314,333 shares subject to the 24 month lock-up due to expire on
July 30, 1999, have been released from the lock-up. However, the underwriter has
consented to the early release from lock-up of the 24 month shares, subject to
our discretion.
WE HAVE IMPLEMENTED ANTI-TAKEOVER PROVISIONS THAT COULD PREVENT AN ACQUISITION
OF VISUAL DATA AT A PREMIUM PRICE
Certain provisions of our Articles of Incorporation and Bylaws may be
deemed to have anti-takeover effects and may delay, defer or prevent a takeover
attempt of us. We are subject to the "affiliated transactions" and "control
share acquisition" provisions of the Florida Business Corporation Act. These
provisions require, subject to certain exceptions, that an "affiliated
transaction" be approved by the holders of two-thirds of the voting shares other
than those beneficially owned by an "interested shareholder" or by a majority of
disinterested directors. Voting rights must also be conferred on "control
shares" acquired in specified control share acquisitions. Lastly, our Articles
of Incorporation authorize the issuance of up to 5,000,000 shares of preferred
stock with such rights and preferences as may be determined from time to time by
the Board of Directors, of which 4,999,850 shares remain without designation and
available for issuance as of March 31, 1999. We include such preferred stock in
our capitalization in order to enhance our financial flexibility. However, the
issuance of large blocks of preferred stock may have a dilutive effect with
respect to existing holders of our common stock.
WE DO NOT PLAN TO PAY CASH DIVIDENDS
Holders of our common stock are entitled to cash dividends when, as and if
declared by the Board of Directors out of funds legally available for the
payment of dividends. We have never paid dividends and our management does not
anticipate the declaration or payments of any dividends in the foreseeable
future. We intend to retain earnings, if any, to finance the developments and
expansion of our business. Our future dividend policy will be subject to the
discretion of our Board of Directors and will be contingent upon future
earnings, if any, our financial condition, capital requirements, general
business conditions and other factors. Therefore, there can be no assurance that
cash dividends of any kind will ever be paid.
WE EXPECT TO EXPERIENCE VOLATILITY IN OUR STOCK PRICES
Historically, there has been and there may continue to be volatility in the
market price for our common stock. Our quarterly operating results, changes in
general conditions in the economy, the financial markets or the marketing
industry, or other developments affecting us or our competitors, could cause the
market price of our common stock to
15
<PAGE> 17
fluctuate substantially. In addition, the stock market in general and the market
prices for Internet-related companies in particular, have experienced extreme
volatility that often has been unrelated to the operating performance of such
companies. These broad market and industry fluctuations may adversely affect the
price of our common stock, regardless of our operating performance.
YEAR 2000 COMPLIANCE
We are aware of the issues associated with the programming code in existing
computer systems as the year 2000 approaches. The year 2000 issue relates to
whether computer systems will properly recognize and process information
relating to dates in and after the year 2000. These systems could fail or
produce erroneous results if they cannot adequately process dates beyond the
year 1999 and are not corrected. Significant uncertainty exists in the software
industry concerning the potential consequences that may result from the failure
of software to adequately address the year 2000 issue. We have reviewed all
software and hardware used internally by us in all support systems to determine
whether they are year 2000 compliant. Most of our software has already been
upgraded by the manufacturer or was recently purchased and is year 2000
compliant. We expect to have our remaining year 2000 compliant systems in place
by September 30, 1999. We also intend to implement and test these solutions
prior to any anticipated impact of the year 2000 issue on our systems. We do not
believe that the aggregate cost for the year 2000 issue will be material.
However, we cannot predict the effect of the year 2000 issue on entities with
which we transact business, and there can be no assurance that the effect of the
year 2000 issue on such entities will not have a material adverse effect on our
business, financial condition or results of operations. We will be formulating a
contingency plan with respect to such entities with which we do business.
In addition, we use third-party equipment, software and content, including
non-information technology systems, such as our security system, building
equipment and non-capital IT systems embedded micro controllers that may not be
year 2000 compliant. We are in the process of developing a plan to assess
whether these third parties are adequately addressing the year 2000 issue and
whether any of our non-IT systems have material year 2000 compliance problems.
Failure of such third-party equipment, software, or content to operate properly
with regard to the year 2000 and thereafter could require us to incur
unanticipated expenses to remedy any problems, which could have a material
adverse effect on our business, results of operations, and financial condition.
Any new software, hardware or support systems implemented in the future
will be year 2000 compliant or will have updates or upgrades or replacements
available before the year 2000 to enable the system to be year 2000 compliant.
We are currently assessing the year 2000 compliance expense and related
potential effect on our earnings.
16
<PAGE> 18
USE OF PROCEEDS
We estimate that we will receive net proceeds of approximately $29,116,000
from our sale of the 1,600,000 shares of common stock offered by us under this
prospectus at an assumed offering price of $20.375 per share. This estimate is
after deducting estimated underwriting discounts and commissions and other fees
and expenses payable by us. We will not receive any portion of the proceeds from
the sale of shares of common stock by the selling shareholders.
We intend to use approximately $16,000,000 of the net proceeds of this
offering (55% of total net proceeds) for the expansion of our existing video
libraries and the development of additional video libraries. In addition, we
intend to use approximately $3,000,000 of such net proceeds (10% of the total),
to purchase production equipment and upgrade our existing studios. We have no
specific plan for use of the remaining proceeds and expect to use such proceeds
for general corporate purposes, including working capital and to fund
anticipated operating losses, capital expenditures, and potential acquisitions.
We are seeking to identify certain acquisition opportunities; however, we
currently have no agreements or understanding with third parties for any
acquisitions. We cannot assure you that we will identify suitable acquisition
candidates or that we will, in fact, complete any acquisition. Until we use the
net proceeds for a particular purpose, we will invest them in short-term,
interest-bearing, investment-grade obligations. Any income from investments will
be added to working capital. Our management will have broad discretion as to
allocation of net proceeds to use as it deems appropriate. See "Risk
Factors -- Our discretion in use of proceeds from this offering."
PRICE RANGE OF SECURITIES
Our common stock and warrants have been quoted on the Nasdaq SmallCap
Market since our initial public offering on July 30, 1997, and are traded under
the symbols "VDAT" and "VDATW," respectively. We have applied for listing of our
common stock and warrants on the Nasdaq National Market. The following table
sets forth, for the periods indicated, the high and low closing bid sale prices
for our common stock and warrants as reported on the Nasdaq SmallCap Market.
<TABLE>
<CAPTION>
COMMON STOCK HIGH LOW
- ------------ ------- -------
<S> <C> <C>
FISCAL YEAR 1997:
Fourth Quarter (from July 30, 1997)...................... $ 6.00 $ 5.50
FISCAL YEAR 1998:
First Quarter............................................ $ 5.63 $ 2.38
Second Quarter........................................... $ 4.75 $ 2.25
Third Quarter............................................ $ 4.75 $ 2.25
Fourth Quarter........................................... $3.8125 $1.3125
FISCAL YEAR 1999:
First Quarter............................................ $ 6.875 $ 2.125
Second Quarter........................................... $16.375 $ 6.563
Third Quarter............................................ $ 40.00 $ 15.75
</TABLE>
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<PAGE> 19
<TABLE>
<CAPTION>
WARRANTS HIGH LOW
- -------- ------ ------
<S> <C> <C>
FISCAL YEAR 1997:
Fourth Quarter (from July 30, 1997)....................... $1.875 $ .875
FISCAL YEAR 1998:
First Quarter............................................. $1.375 $ .500
Second Quarter............................................ $ .938 $ .375
Third Quarter............................................. $ .938 $ .344
Fourth Quarter............................................ $ .813 $ .250
FISCAL YEAR 1999:
First Quarter............................................. $ 2.75 $ .313
Second Quarter............................................ $10.25 $ 2.50
Third Quarter............................................. $35.00 $9.625
</TABLE>
On July 2, 1999, the last reported closing bid prices of the common stock
and warrants on the Nasdaq SmallCap Market was $20.375 per share and $14.375 per
warrant. These prices do not include retail mark-ups, mark-downs or commissions,
and may not necessarily represent actual transactions. As of July 2, 1999, there
were at least 1,000 shareholders of record of the common stock.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock. We
currently expect to retain future earnings, if any, to finance the growth and
development of our business.
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<PAGE> 20
CAPITALIZATION
The following table sets forth, as of March 31, 1999, (i) our consolidated
capitalization and (ii) our pro forma consolidated capitalization as adjusted to
reflect the sale of 1,600,000 shares of the common stock offered by us pursuant
to this prospectus, after deduction of estimated offering expenses and
underwriting discounts, assuming an offering price of $20.375. This table should
be read in conjunction with our consolidated financial statements and the notes
thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1999
------------------------------
ACTUAL AS ADJUSTED(1)
------------ --------------
<S> <C> <C>
Notes payable, shareholders, net.................. $ 40,500 $ 40,500
Stockholders' equity
Common stock, par value $.0001, 5,744,859 shares
issued and outstanding, actual 7,344,859
shares issued and outstanding, as adjusted... 574 734
Paid-in capital................................... 18,461,683 47,577,523
Accumulated deficit............................... (12,434,194) (12,434,194)
------------ ------------
Total stockholders' equity........................ 6,028,063 35,144,063
------------ ------------
Total capitalization.............................. $ 6,068,563 $ 35,184,563
============ ============
</TABLE>
- -------------------------
(1) After deducting underwriting discounts, commissions and offering expenses,
estimated to be an aggregate of $3,484,000.
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<PAGE> 21
DILUTION
Purchasers of our common stock in this offering will experience immediate
and substantial dilution in the net tangible book value of the common stock for
this offering. "Net tangible book value" per share represents the amount of our
total tangible assets less our total liabilities, divided by the number of
shares of our common stock outstanding. At March 31, 1999, we had a net tangible
book value of $5,229,860, or approximately $0.91 per share of our outstanding
common stock. After giving effect to our receipt of the estimated net proceeds
from our sale of the 1,600,000 shares of our common stock offered hereby at an
assumed offering price of $20.375 per share (after deducting underwriting
discounts and commissions and estimated offering expenses payable by us), our
net tangible book value at March 31, 1999 would have been approximately
$34,345,860 or $4.68 per share of our common stock, representing an immediate
increase in net tangible book value of $3.77 per share to existing shareholders
and an immediate dilution of $15.70 per share to investors in this offering.
"Dilution" is determined by subtracting net tangible book value per share after
the offering from the offering price to investors.
The following table illustrates this per share dilution:
<TABLE>
<S> <C>
Assumed offering price per share............................ $ 20.38
Net tangible book value per share, before the offering.... .91
Increase attributable to new investors.................... 3.77
-------
Pro forma net tangible book value after the offering........ 4.68
-------
Dilution to new investors................................... $ 15.70
=======
</TABLE>
The following table summarizes the number of shares of our common stock
purchased from us, the total consideration paid and the average price per share
paid by (i) our existing shareholders at March 31, 1999 and (ii) new investors
purchasing shares of our common stock in this offering, before deducting the
underwriting discounts and commissions and our estimated offering expenses
payable by us.
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION PAID
-------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing
Shareholders....... 5,744,859 78% $18,462,257 36% $ 3.21
New Investors........ 1,600,000 22% 32,600,000 64% $20.38
--------- --- ----------- ---
Total................ 7,344,859 100% $51,062,257 100% $ 6.95
========= === =========== ===
</TABLE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following tables set forth our selected consolidated financial data.
The selected statement of operations data for the period from May 1993
(inception) to September 30, 1994 and the years ended September 30, 1995 and
1996 are derived from our Consolidated Financial Statements, which have been
audited by Goldstein Lewin & Co., independent certified public accountants. The
selected statement of operations data for the years ended September 30, 1997 and
1998 are derived from our Consolidated Financial Statements, which have been
audited by Arthur Andersen LLP, independent certified public accountants. The
selected statement of operations data for the six month periods ended March 31,
1998 and 1999 and the summary balance sheet data as of March 31, 1999 have been
derived from our unaudited Consolidated Financial Statements. The Consolidated
Financial Statements for the years ended September 30, 1996, 1997 and 1998 and
the reports thereon and the six months ended March 31, 1998 and 1999 appear
elsewhere in this prospectus. The Selected Consolidated Financial Data presented
below should be read
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<PAGE> 22
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and the
Notes thereto, appearing elsewhere herein. The results for the six months ended
March 31, 1999 are not necessarily indicative of results that may be expected
for the full fiscal year.
SELECTED STATEMENTS OF OPERATIONS DATA*:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FROM MAY 17, 1993 FISCAL YEAR ENDED SEPTEMBER 30, MARCH 31,
(INCEPTION) TO ----------------------------------------------------- -------------------------
SEPTEMBER 30, 1994 1995 1996 1997 1998 1998 1999
------------------ ---------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue................. $ -- $ -- $ 111,719 $ 193,038 $ 1,880,842(1) $ 489,041 $ 2,117,901(1)
Operating costs:
Cost of sales.......... -- -- -- -- 803,784 -- 1,309,766
Selling, general and
administrative....... 66,674 117,092 527,692 1,441,173 2,011,815 545,317 1,901,722
Compensation and
related costs........ -- 206,935 985,441 789,165 1,341,737 580,831 927,232
Production............. -- 17,982 121,239 83,357 22,354 31,231 146,968
Occupancy.............. 38,409 62,991 43,875 82,373 157,780 72,180 73,614
Professional and
consulting fees...... 77,886 87,662 298,815 352,853 1,006,243 401,926 719,573
---------- ---------- ----------- ----------- ----------- ----------- -----------
Total operating
costs........... 182,969 492,662 1,977,962 2,748,921 5,343,713 1,631,485 5,078,875
---------- ---------- ----------- ----------- ----------- ----------- -----------
Loss from operations... (182,969) (492,662) (1,865,343) (2,555,883) (3,462,871) (1,142,444) (2,960,974)
Other income
(expense).............. (5,797) (7,897) (26,359) (1,018,079)(2) 28,276 43.948 141,405
---------- ---------- ----------- ----------- ----------- ----------- -----------
Loss before taxes...... (188,766) (500,559) (1,891,702) (3,573,962) (3,434,595) (1,098,496) (2,819,569)
Income taxes............ -- -- -- -- -- -- 4,000
---------- ---------- ----------- ----------- ----------- ----------- -----------
Net loss............... $ (188,766) $ (500,559) $(1,891,702) $(3,573,962) $(3,434,595) $(1,098,496) $(2,823,569)
========== ========== =========== =========== =========== =========== ===========
Net loss per
share -- basic and
diluted................ $ (0.18) $ (0.43) $ (1.35) $ (1.42) $ (1.06) $ (0.36) $ (0.58)
========== ========== =========== =========== =========== =========== ===========
Weighted average shares
of common stock
outstanding............ 1,066,091 1,173,413 1,405,228 2,509,249 3,253,731 3,078,585 4,893,186
========== ========== =========== =========== =========== =========== ===========
</TABLE>
- ---------------
* Certain amounts have been reclassified to conform with current financial
statement presentation.
(1) Operating revenue for the fiscal year ended September 30, 1998 and the six
months ended March 31, 1999 include $1,340,602 and $1,891,930, respectively,
derived from our EDnet subsidiary.
(2) Includes approximately $970,000 of non-cash interest expense.
SUMMARY CONSOLIDATED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, AS OF MARCH 31,
----------------------------------------------- -----------------------
1995 1996 1997 1998 1998 1999
-------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Working capital
(deficit)................ $166,492 $ (118,918) $2,345,988 $ (439,440) $ 330,776 $3,081,931
Total assets............... $483,032 $1,329,151 $4,587,892 $6,394,088 $3,600,735 $8,721,993
Long-term debt............. $116,256 $ 788,435 $ 974,887 $ 15,058 $ -- $ 688,797
Stockholders' equity....... $297,596 $ 189,401 $3,247,104 $3,884,693 $2,481,134 $6,028,063
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Read the following discussion together with the information contained in
the Consolidated Financial Statements and related Notes included elsewhere in
this prospectus.
OVERVIEW
We produce and own original video content specifically developed for the
Internet and interactive television. We are also a full service production and
distribution company capable of broadcasting and globally transmitting rich
media (audio and video) content. Our growing portfolio of full-motion video
information libraries on topics such as travel, corporate information and
healthcare is designed to target specific audiences in order to generate
revenues from advertising, subscriptions, viewership, e-commerce and
sponsorships.
Using the latest technology in video editing, combined with a global
network of veteran camera crews, we are able to maintain high quality and
consistency in our video productions. Our digital video production/editing
component, working in tandem with our management/storage/serving component,
produce what we believe to be a seamless infrastructure. Our goal is to deliver
a level of expertise not currently found elsewhere in the market, and our
vertically integrated structure allows us to price our services lower than other
content developers and providers as we do not need to outsource our editing
services. We utilize the latest available technology for distribution of our
content, and therefore, we are partners, not competitors, with streaming video
Internet companies and network providers.
In June 1998, we acquired a 51% interest in Entertainment Digital Network,
Inc. See "Our EDnet subsidiary." Currently EDnet accounts for a significant
amount of our revenue, representing approximately 72% and 90% of total revenues
in fiscal 1998 and for the six months ended March 31, 1999, respectively. While
we believe that EDnet will remain an important part of our revenue, as we
develop revenues from the marketing of our video information libraries, we
expect that our reliance on EDnet will decrease.
We were incorporated in May of 1993 and did not begin operations until
October of that same year. From inception through August of 1997, our operating
activities related primarily to raising capital and completing our initial
public offering, purchasing operating assets and creating our initial video
libraries. We used the proceeds from our initial public offering in 1997 to
continue to enhance our HotelView library and to establish its distribution over
the Internet, to develop additional content and libraries and to purchase the
requisite hardware and software to link us to the Internet and provide links to
other websites. Throughout the remainder of 1997 and into 1998, we introduced
new libraries in the travel industry (including AttractionView and ResortView).
In 1998 and 1999, we launched new libraries in the corporate information
industry (including VideoNews Wire and TalentView) and the healthcare industry
(including CareView and MedicalView). We continue to invest in the enhancement
of our existing video libraries, the creation of new video libraries, the
development of certain strategic partnerships, marketing and building domestic
and international sales channels.
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PLAN OF OPERATION
Our current plan of operation includes continuing to expand the marketing
of our video libraries, the development of new products and to continue to look
for synergistic acquisition opportunities.
During the first quarter of fiscal 1999, we began offering a new service
through our Video News Wire division. By combining the worldwide high speed data
networks of Entertainment Digital Network, Inc. ("EDnet"), and our worldwide
network of camera crews, we are able to provide our clients with live audio and
video event broadcast capabilities via the Internet. This service is being
marketed through our partnership with PR Newswire. We have also announced our
MedicalView division that will create and distribute Internet-based video
programs for physicians, health care professionals and consumers.
As we continued with our integration of EDnet, it became apparent that the
web development resources at Internet Business Solutions, Inc. ("IBS"), EDnet's
wholly-owned subsidiary, duplicated existing facilities at Visual Data. On
December 11, 1998, EDnet completed the sale of substantially all of the assets
of IBS for a total of $1,000,000. EDnet recognized a gain of approximately
$663,000 on the sale. We recorded our portion of the gain, approximately
$338,000, as a reduction of excess of purchase price over net assets acquired.
While the sale of IBS' assets is expected to reduce budgeted revenues, EDnet
intends to offset this loss with the continued growth of its core audio
networking business and the aggressive introduction of its video networking
services which occurred in the Spring of 1999.
REVENUE RECOGNITION
Our HotelView, CareView and ResortView libraries recognize a portion of
their contract revenue at the time of completion of video production services
with the remaining revenue recognized over the term of the contracts. Per hit
charges are recognized when users actually view a video. Commission on
ResortView bookings are recognized when the stays are completed. Currently, our
VideoNews Wire and MedicalView divisions recognize revenue when a project is
completed and our client is billed. EDnet recognizes revenues from the sale of
equipment when the product is shipped and revenues from equipment rental,
installation, Webcasting and bridging are recognized when service is performed.
Network usage is billed at the beginning of the month based on actual usage from
the middle of the previous month and an estimate of the second half of the
month, based on the activity from the previous billing.
RESULTS OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1999 COMPARED TO SIX MONTHS ENDED MARCH 31, 1998
We recognized revenue of approximately $2,118,000 for the six months ended
March 31, 1999, an increase of $1,629,000 (333%) from $489,000 for the same
period last year. Revenues from EDnet accounted for approximately $1,892,000 for
the six month period, with the balance of our revenue coming from HotelView's
new and renewal contracts, initial contracts signed by CareView and ResortView
and fees earned by Video News Wire. Production and distribution revenue
decreased from approximately $489,000 to $226,000 for the six months ended March
31, 1999 as compared to the same period last year due to a non-recurring
marketing fee of $250,000 which we recorded in March of 1998.
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Cost of sales, which includes equipment and services, is wholly
attributable to sales by EDnet. Production costs increased by approximately
$116,000 (374%) from $31,000 to $147,000 for the six months ended March 31, 1999
as compared to the same period last year. This increase was due to an increase
in production activity, as well as the recognition of some deferred costs due to
the completion of certain contracts.
Selling, general and administrative expenses, which include advertising,
depreciation, telephone and travel, increased approximately $1,357,000 (249%)
from $545,000 to $1,902,000 for the six months ended March 31, 1999 as compared
to the same period last year. Approximately $840,000 of the increase was due to
the inclusion of EDnet's expenses. Depreciation expense increased approximately
$220,000 (423%), from $52,000 to $272,000, advertising and associated expense
increased approximately $71,900 (114%) from $62,800 to $134,700, Internet
related expense increased approximately $40,000 (222%) from $18,000 to $58,000
and the balance of the increase reflects additional website development, as well
as the rollout of the other libraries and related websites.
Compensation and related costs increased by approximately $346,400 (60%)
from $580,800 to $927,200 for the six months ended March 31, 1999, over the same
period last year due to growth in both sales and technical staff. Professional
fees increased approximately $318,000 (79%) from $402,000 to $720,000 for the
six months ended March 31, 1999 over the comparable periods last year primarily
due to an increase in consulting and investment banking fees.
YEAR ENDED SEPTEMBER 30, 1998 COMPARED TO YEAR ENDED SEPTEMBER 30, 1997
We recognized revenues of $1,880,842 during the fiscal year ended September
30, 1998, representing an increase of approximately 874% from revenues for
fiscal 1997. Included in our revenues for fiscal 1998 are revenues of $1,340,602
which we recorded from our newly acquired subsidiary, EDnet. EDnet's revenues
are derived from the sale of equipment, usage fees related to its network which
allows the exchange of high quality audio, video, multimedia and data
communications, and Website development and consulting fees. We recorded
$250,000 of revenue as a signing fee when we entered into a marketing agreement
whereby we, through our TalentView division, will be marketing and distributing
a database and search engine software product. Revenues from HotelView
recognized during fiscal 1998 include new sales and renewals, which amounted to
approximately $200,000. The balance of our revenue during fiscal 1998 came from
initial contracts signed by CareView, billings by our Internet Technologies
group, and fees earned by Video News Wire. Revenues recognized by us during
fiscal 1997 were limited to the redemption of room credit balances due to
bookings made by the HotelView travel agency network and video tape sales to
hotels. The revenues recognized by us during fiscal 1998 represent the results
of our implementation of our plan of operation, which centered on continuing to
expand the marketing of our multi-media information libraries that are designed
to capture the interest of the general public in order to generate revenues from
advertising, subscriptions, viewership, e-commerce transactions and
sponsorships. During fiscal 1998, the recognition of significant revenues from
HotelView was delayed from our internal projections due to a restructuring of
the business model as well as a new Internet site and marketing strategy. In
addition, during fiscal 1998 CareView revenues have been delayed based on the
site software and Internet software taking longer to develop than was originally
anticipated. During fiscal 1999, as our business plan is further implemented,
management expects to significantly increase the revenues reported by us, with
the majority of such increases being projected for the last two quarters of
fiscal 1999.
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Cost of sales, as it appears in the Consolidated Statements of Operations,
related primarily to EDnet. Selling, general and administrative expenses
increased approximately $570,650 or 39.5% during fiscal 1998 as compared to the
same period last year, reflecting the growth of HotelView's sales and marketing
activities and Website development, as well as the rollout of the other
libraries and related Websites. This increase includes approximately $483,365 of
EDnet expense. Increases occurred in Internet related expenses, research and
marketing consulting, travel and depreciation. We anticipate further increases
in selling, general and administrative expenses during fiscal 1999, relative to
comparative periods in fiscal 1998, as we continue to implement our business
plan.
Compared to fiscal 1997, compensation and related costs increased by
approximately 70% due to growth in both sales and technical staff. Based upon
the current levels of staffing, management believes we will be able to further
implement our business plan during fiscal 1999 without substantially increasing
our compensation and related costs. The increase in occupancy costs reflects the
increased expense due to the move to our principal executive offices in
September 1997. Professional fees increased for fiscal 1998 over the prior year
principally due to non-recurring consulting fees totaling approximately $935,000
that were paid with stock, stock options and warrants. In addition, accounting
and legal fees increased from 1997 to 1998. Of the legal fees, approximately
$60,000 were associated with a specific contract or transaction and are
non-recurring.
Interest income reported for fiscal 1998 reflects an increase of
approximately 126% from fiscal 1997, which consisted primarily of interest
earned on the temporary investment of portions of the proceeds from our initial
public offering and other equity infusions. During fiscal 1998, we reported
rental income of $80,671 which was derived from the rental of a portion of our
building pursuant to a lease which expires in February 2003. Management expects
such income to continue during fiscal 1999. Interest expense for fiscal 1998
reflects a reduction of approximately $945,865 or 90% as a result of a non-
recurring, non-cash interest expense of $969,531 incurred in fiscal year 1997 on
shareholder loans. We reported interest expense of $96,362 during fiscal 1998
related to our mortgage and capital leases.
YEAR ENDED SEPTEMBER 30, 1997 COMPARED TO YEAR ENDED SEPTEMBER 30, 1996
Revenues of $193,038 were recognized during fiscal 1997 based on the
redemption of room credit balances due to bookings made by the HotelView travel
agency network and tape sales to hotels. Interest expense increased
approximately $1,015,115 in fiscal 1997 versus 1996 primarily due to the
non-cash amortization of discounts on certain notes payable. Selling, general
and administrative expenses increased approximately 173% in fiscal 1997 versus
1996 and included $690,000 of deferred costs which were charged to expense
during fiscal 1997. Both of these items are non-recurring and we do not
anticipate significant interest expense during fiscal year 1998. Through
December 1997, we offered hotels and resorts the option of either paying the
contract in full in cash at the time of execution or paying a cash deposit, with
the balance of the contract price due under a performance based arrangement.
Because there is no time limitation when or if the balance of the fees will
become billable, we cannot predict when these funds will be available. Although
management believes it will continue to bill and collect amounts due under this
performance based arrangement during fiscal 1998, any long term delay in or
inability to collect these amounts may have an adverse effect on us. Hotel
contract renewals are being billed on a cash basis and from January 1998
forward, we will charge hotels and resorts an annual fee, payable in cash, for
their inclusion in the library as well as a charge per Internet site visit by
potential hotel guests.
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IMPACT OF YEAR 2000
We are aware of the issues associated with the programming code in existing
computer systems as the year 2000 approaches. The year 2000 issue relates to
whether computer systems will properly recognize and process information
relating to dates in and after the year 2000. These systems could fail or
produce erroneous results if they cannot adequately process dates beyond the
year 1999 and are not corrected. Significant uncertainty exists in the software
industry concerning the potential consequences that may result from the failure
of software to adequately address the year 2000 issue. We have reviewed all
software and hardware used internally by us in all support systems to determine
whether they are year 2000 compliant. Most of our software has already been
upgraded by the manufacturer or was recently purchased and is year 2000
compliant. We expect to have our remaining year 2000 compliant systems in place
by September 1999. We also intend to implement and test these solutions prior to
any anticipated impact of the year 2000 issue on its systems. We do not believe
that the aggregate cost for the year 2000 issue will be material. We, however,
cannot predict the effect of the year 2000 issue on entities with which we
transact business, and there can be no assurance that the effect of the year
2000 issue on such entities will not have a material adverse effect on our
business, financial condition or results of operations. We will be formulating a
contingency plan with respect to such entities with which we do business. In
addition, we utilize third-party equipment, software and content, including
non-information technology systems, such as our security system, building
equipment and non-capital IT systems embedded microcontrollers that may not be
year 2000 compliant. We are in the process of developing a plan to assess
whether these third parties are adequately addressing the year 2000 issue and
whether any of our non-IT systems have material year 2000 compliance problems.
Failure of such third-party equipment, software, or content to operate properly
with regard to the year 2000 and thereafter could require us to incur
unanticipated expenses to remedy any problems, which could have a material
adverse effect on our business, results of operations, and financial condition.
Any new software, hardware or support systems implemented in the future
will be year 2000 compliant or will have updates or upgrades or replacements
available before the year 2000 to enable the system to be year 2000 compliant.
Management is currently assessing the year 2000 compliance expense and related
potential effect on our earnings. To date, we have not incurred any incremental
expense directly related to year 2000 compliance.
LIQUIDITY AND CAPITAL RESOURCES
From inception through July 1997, our operations were funded by investment
capital from the sale of private equity and shareholder loans. In July 1997, we
completed our initial public offering and received net proceeds of approximately
$4.8 million. Since July 1997, we have sustained our operations from internally
generated funds and proceeds from the private placement of our preferred and
common stock, and the exercise of options and warrants from which we derived
total net proceeds of approximately $9.1 million.
At March 31, 1999, we had working capital of approximately $3,082,000. This
was primarily a result of two private placements. One sale took place during
November and December 1998 in which a total of 532,500 shares were sold at
approximately $2.00 per share to 20 accredited investors for which the Company
received gross proceeds of $1,040,000. In February 1999, we received net
proceeds of approximately $2,600,000 from
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the sale of our common stock to institutional investors in the second private
placement, selling a total of 333,334 shares.
We believe we have sufficient working capital to fund our current plan of
operations until our subsidiaries begin producing revenues sufficient to sustain
operations. However, in the event management should determine to either
accelerate their business plan or seek additional acquisitions, we may be
required to raise additional capital. There are no assurances that such capital
will be available to us on terms and conditions we find acceptable. With the
proceeds of this offering, coupled with internal liquidity, we will be able to
sustain our operations for the next twenty-four months.
In March 1999, we negotiated an extension of our mortgage with the current
lender. The term of the note was extended by forty-two months and is now due on
September 30, 2002. The note requires monthly payments of approximately $10,000
and a balloon payment of approximately $800,000 at September 30, 2002.
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BUSINESS
We produce and own original video content specifically developed for the
Internet and interactive television. We are also a full service production and
distribution company capable of aggregating, broadcasting and globally
transmitting rich media (audio and video) content. Our content includes video
libraries on topics such as travel, corporate information and healthcare. Our
growing portfolio of full-motion video information libraries is designed to
target specific audiences in order to generate revenues from advertising,
subscriptions, viewership, e-commerce and sponsorships.
For example, our HotelView(R) library provides two to four minute
multimedia video tours that give the viewer a detailed look at the hotel's guest
rooms, grounds, meeting space, recreational facilities, dining venues and other
amenities that can be accessed through the participating hotels' own Website, at
HotelView.com and at hundreds of other travel sites. HotelView(R)'s revenues are
generated through an annual subscription fee, which includes the creation,
storage and serving on the Internet, and per view revenues, which are paid by
the hotel, each time someone views the video on the Internet. Additional
revenues will also be generated from advertising fees and sponsorships.
Using the latest technology in video editing, combined with a global
network of camera crews, we are able to maintain high quality and consistency in
our video productions. Our video production/editing component, working in tandem
with our management/storage/serving component, produce what we believe to be a
seamless infrastructure. Our goal is to deliver a level of expertise not
currently found elsewhere in the market. We believe that our vertically
integrated structure allows us to competitively price our services. We utilize
the latest available technology for distribution of our content, and therefore,
we are partners, not competitors, with streaming video Internet companies and
network providers.
In June 1998, we acquired a 51% interest in Entertainment Digital Network,
Inc. See "Our EDnet subsidiary." Currently, EDnet accounts for a significant
amount of our revenue representing approximately 72% and 90% of total revenues
in fiscal 1998 and for the six months ended March 31, 1999, respectively.
STRATEGIC RELATIONSHIPS
Our business model is focused on partnering Visual Data with other
synergistic companies. We have developed strategic partnerships with recognized
industry leaders in the travel, corporate information and healthcare industries,
including:
THE TRAVEL INDUSTRY
- Carlson Travel Group, Inc. We are the supplier of video content on
hotels and resorts to the country's largest travel agency franchise.
- Interval International, Inc. We are the exclusive producer and
distributor of video content for the world's second largest marketing
organization for timeshare units.
- REZsolutions Inc. We have a co-marketing agreement with the leading
supplier of integrated business solutions for the hospitality industry.
- Broadcast.com, Inc. We are a supplier of video content on hotels,
resorts, attractions and destination information to the Internet's
largest broadcaster of video content and we are a sponsor of their travel
channel.
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THE CORPORATE INFORMATION INDUSTRY
- PR Newswire Corporation. We are the exclusive provider of video press
releases for the world's largest distributor of press releases.
- Canada Newswire, Ltd. We are the exclusive provider of video press
releases for Canada's largest distributor of press releases.
- InterVu, Inc. Under an Internet distribution and co-marketing agreement,
InterVu is a provider of streaming media services for our multimedia
content and InterVu in turn resells Visual Data production services.
THE HEALTHCARE INDUSTRY
- Physicians' Online, Inc. We have an agreement with the world's largest
Internet community of doctors, with over 170,000 physician members, to
distribute our healthcare related video content.
- Inteli-Health, Inc. We have an agreement, with the joint venture of
Aetna Insurance and Johns Hopkins Health Services, to distribute our
healthcare related video content to the general public.
INDUSTRY BACKGROUND
The Internet has experienced dramatic growth in recent years. The
development of improved search engines and Web browsers has led to substantial
end-user interest in the Internet. Computer Almanac Industry, Inc. estimates
that the number of Web users will increase from approximately 147 million at the
end of 1998 to approximately 320 million and 720 million by the end of 2000 and
2005, respectively. A 1998 study completed by the Georgia Institute of
Technology estimates that approximately 32% of Internet users spend 20 or more
hours using a Web browser each week.
Broadcasting audio and video content over the Internet offers certain
opportunities that are not generally available from traditional media. Currently
available analog technology and government regulations limit the ability of
radio and television stations to broadcast beyond certain geographic areas.
Radios and televisions are not widely used in office buildings and other
workplaces, where Internet access has become commonplace. Traditional business
communication tools such as audio conferencing and video conferencing can be
costly, non-targeted, and inconvenient. In addition, traditional broadcasters
are limited in their ability to measure or identify in real time the listeners
or viewers of a program. By using the Internet, targeted streaming media content
can be broadcast to a geographically dispersed audience of customers, suppliers,
employees and shareholders at relatively low costs. Internet users can interact
with the broadcast content by responding to online surveys, voting in polls and
obtaining additional information. In addition, Internet broadcasters can provide
highly specific information about a program's audience to content providers,
advertisers and users of Internet business services. The convergence of the
Internet's capabilities and attributes has accelerated its acceptance as a
business tool, leading to rapidly growing economic opportunities in Web-based
advertising and business service offerings, including audio conferencing,
electronic commerce and video transmission, among others.
Much of the Internet's rapid evolution towards becoming a mass medium can
be attributed to the accelerated pace of technological innovation, which has
expanded the Web's capabilities and improved users' experiences. Most notably,
the Internet has evolved from a mass of static, text-oriented Web pages and
email services to a much richer
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environment, capable of delivering graphical, interactive and multimedia
content. Prior to the development of streaming media technologies, users could
not play back audio and video clips until the content was downloaded in its
entirety. As a result, live Internet broadcasts were not possible. The
development of streaming media products from companies such as Microsoft and
RealNetworks enables the simultaneous transmission and playback (i.e., the
Internet broadcast) of continuous "streams" of audio and video content over the
Internet and intranets. These technologies have evolved to deliver audio and
video over widely used 28.8 kbps or 56 kbps narrow bandwidth modems, yet can
scale in quality to take advantage of higher speed access that is being provided
by xDSL, cable modems and other emerging broadband technologies.
We believe recent research has shown a significant increase in Internet
users with broadband width capabilities. Media Metrix, Inc. reports that, in
December 1998, more than 19 million home PC users viewed some form of streaming
video. In addition, an estimated 14 million people have connections to the
Internet at their workplaces that are fast enough to carry sophisticated moving
images and sounds. Forrester Research reported that there were approximately
700,000 households in the United States that had broadband access in 1998. This
number is expected to increase to 2.2 million in 1999, 4.7 million in 2000, 9.2
million in 2001 and 15.8 million, or approximately 26% of on-line households, by
2002.
We believe that once the major investments in broadband service have been
made and the infrastructure has been developed, the focus will turn to the
content to be viewed and that video on the Internet will logically become the
next area of major focus. The search will then begin for video that is both of
interest to users and commercially viable.
THE VISUAL DATA SOLUTION
To meet the growing demand for video content we have developed
comprehensive original video libraries in the areas of travel, corporate
information and health care. We have a worldwide network of professional
freelance camera crews, and are able to shoot the video, edit it in-house
utilizing digital, non-linear editing systems, and serve and distribute finished
content on the Internet on a price competitive basis.
In addition to being a content developer and owner, we are a full service
production and distribution (broadcasting) company, capable of aggregating,
broadcasting and globally transmitting rich media (audio and video) content. By
both creating and owning our content we are able to repurpose the content to
meet the rapidly changing needs of the Internet consumer. We can package and
deliver the same content in a multitude of different forms, simultaneously
addressing the diverse needs of Internet consumers. In addition, we are not
required to invest our capital in the rapidly changing area of streaming media
technologies but, through our strategic partners, we are able to deliver rich
media content using the latest available technologies at little or no additional
cost.
As we implement our strategy described below, we believe that we will not
only maintain our competitive advantage, but will establish a standard for the
future design and production of original video content for the Internet.
STRATEGY
Our strategy is to establish ourselves as the leading Internet developer
and owner of video content. In addition, we want to become the leading provider
of Internet based video
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production and broadcast services. The key components to achieving these goals
include the following:
EXPAND OUR EXISTING VIDEO "VIEW" LIBRARIES
We have developed video libraries of rich media content in the areas of
travel, corporate information and healthcare. Our strategy for further
development of these libraries is based on seeding each of these vertical
markets with enough content to achieve market prominence.
DEVELOP NEW VIDEO TOPICAL LIBRARIES
As a result of our success in the areas of travel, corporate information
and healthcare, we intend to identify new industries and market niches which
have a high Internet consumer demand for video libraries. Areas identified
include education, sports and product promotion.
CHART
EXPAND OUR BUSINESS TO BUSINESS PRODUCTION SERVICES
By increasing the visibility of our production and broadcast services, our
strategy is to offer end-to-end solutions, from multimedia production through
Internet broadcast services, to the business community.
LEVERAGE STRATEGIC RELATIONSHIPS
Following our business model, we focused on partnering Visual Data
Corporation with other companies strategic to all areas of our operations,
including video content, business services and distribution. Some of our
strategic partners include PR Newswire, InterVu, REZsolutions, Carlson Travel
Group, Interval International, Pegasus/TravelWeb, Inteli-Health and Physicians'
Online.
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MAKE SYNERGISTIC ACQUISITIONS
We continue to look for strategic acquisition opportunities, like EDnet,
that will allow us to accelerate the achievement of our overall business goals
and permit us to quickly take advantage of new or synergistic market
opportunities.
The major focus of our efforts to date has been the travel industry. The
majority of research currently available indicates that this sector is one of
the fastest growing on the Internet. Jupiter Communications predicts travel
related transactions on the Internet will gross $1.9 billion this year, with
this figure expected to increase to $11.7 billion by 2002. We have five
libraries, existing or under development, devoted to the travel industry. Our
goal is to attain critical mass in each category, thereby establishing Visual
Data as a significant company in this growth area.
In addition, we have developed other libraries of commercial value.
CareView(TM)'s full motion nursing home videos can be utilized by health care
workers and patients' families to locate appropriate nursing homes or assisted
living facilities. MedicalView(TM), an on-line source of information for
physicians, health care professionals and consumers, operates in the rapidly
growing area of medical and health related information.
We believe there are a number of other areas of opportunity for business
growth and revenue generation as video content is more widely used to promote
products and services. We believe Visual Data is currently well positioned to
take advantage of these expanding opportunities by having the synergy of
efficiencies and expertise in each of these areas.
SALES AND MARKETING
The core of our market strategy has been to partner with the recognized
leaders in each of the markets our video content addresses. Through these
partnerships we can take advantage of each partner's existing marketing
programs, sales forces and business relationships. By offering our products and
services in conjunction with their products, our partners can increase the value
of their offerings and increase the revenues associated with the individual
sales. Likewise, we can take advantage of our partners' products and reduce
costs in areas such as sales personnel, marketing, and service fees. Contracts
with these partners range from one to two years, some of which are terminable
upon short term notice.
For example, Interval International, the second largest timeshare exchange
company in the world, uses its sales force to sell our ResortView(R)product in
conjunction with their resort developer program.
PR Newswire has 28 offices and over 130 sales persons in the U.S. and
Europe. With PR Newswire as our marketing arm for Video News Wire, we believe it
likely that Visual Data will be able to secure a significant position in the
market for corporate videos, analysts webcasts, video press releases and live
event broadcasts.
We also use a variety of additional marketing methods, including our
internal sales force, to market HotelView, CareView, MedicalView, ResortView,
AttractionView and DestinationView to a variety of potential clients including
hotel chains, resorts and nursing homes. We utilize independent sales
representatives to market HotelView and MedicalView. Following the offering, we
will increase our marketing efforts by hiring additional internal and
independent sales representatives.
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OUR PRODUCTS AND SERVICES
We are a leading producer and owner of original video content specifically
developed for the Internet and interactive television. We currently have eight
existing libraries and five under development. In addition to revenues generated
from our core businesses, we recorded revenues in fiscal 1998 from equipment
sales, installation and usage fees, as well as web design and consulting fees
from our majority owned subsidiary EDnet. We anticipate that the majority of our
future revenues will be generated from the development, production and
distribution of our original content through our libraries and other sources
associated with the content and its channels of distribution. These other
sources of revenue associated with the distribution of the content will include
per view and tuition charges, usage and booking fees, syndication and royalty
fees, advertising and sponsorship revenues and e-commerce transactions, as
outlined in the table below.
PRODUCTS AND SERVICES
<TABLE>
<CAPTION>
CONTENT ADVERTISING
ANNUAL PER VIEW SYNDICATION REVENUES
FEE AND TRANSACTION AND AND
PRODUCTS AND SERVICES SUBSCRIPTIONS(1) TUITIONS E-COMMERCE ROYALTIES SPONSORSHIPS
- --------------------- ---------------- -------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
EXISTING LIBRARIES:
TRAVEL INDUSTRY
HotelView.......... Yes Yes -- Yes Yes
ResortView......... Yes -- Yes Yes Yes
AttractionView..... Yes Yes Yes Yes
GolfcourseView..... Yes Yes -- Yes Yes
CORPORATE INDUSTRY:
Video News Wire.... Yes -- -- Yes Yes
TalentView......... Yes -- -- -- Yes
HEALTHCARE INDUSTRY:
CareView........... Yes -- -- -- Yes
MedicalView........ Yes Yes Yes Yes Yes
FUTURE LIBRARIES:
ProductView........ Yes -- Yes Yes Yes
CampusView......... -- Yes -- Yes Yes
DestinationView.... Yes -- -- Yes Yes
CruiseView......... Yes Yes -- Yes Yes
SERVICES:
VideoViewer........ -- -- -- Yes Yes
Production and
Broadcast
Services(2)..... Yes Yes Yes Yes Yes
</TABLE>
- -------------------------
(1) Includes Production Services
(2) Includes Webcasts
OUR EXISTING VIDEO LIBRARIES
THE TRAVEL INDUSTRY
HotelView(R) -- www.hotelview.com
Our HotelView(R) library provides two to four minute multimedia video tours
that give the viewer a detailed look at the hotel's guestrooms, grounds, meeting
space, recreational facilities, dining venues and other amenities. It also
includes a map showing the hotel's location relative to area attractions and
airports. The video tour can be accessed through the participating hotel's own
Website, HotelView(R)'s Website at www.hotelview.com, and
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hundreds of other Websites, such as TravelWeb.com (Pegasus/Travel Web), All-
Hotels.com, HotelBook.com, REZsolutions (a product of Utell International and
Anasazi, Inc. and the world's leading supplier of integrated business solutions
for the hospitality industry) and Mercavia (Carlson Travel Group's Intranet
site).
HotelView(R) currently features over 105 hotels worldwide, including the
Anaheim (California) Hilton & Towers, Baltshug Kempinski Moscow, Eden Roc Resort
& Spa Miami, Hilton at Walt Disney World Village, Hotel Nikko San Francisco,
Ritz Carlton Laguna Niguel California, Vier Jahreszeiten Berlin and the Waldorf
Astoria in New York.
HotelView(R)'s revenues are generated through an annual subscription fee,
which includes the creation, storage and serving of the video on the Internet,
and per view revenues, which are paid by the hotel, each time someone views the
video on the Internet. Our initial results have found that approximately 33% of
viewers who click on a hotel's Website will view a video if it is available, and
of those viewing videos approximately 10% are booking rooms.
ResortView(R) -- www.resortview.com
Our ResortView(R) library provides developers of timeshare properties with
the ability to advertise their resort to a more targeted, and potentially
larger, prospect audience than they have had in the past. It is accessible via
travel agents or at home or work via the Internet. ResortView(R) then "closes
the loop" by allowing the property to be booked by travel agencies throughout
the world utilizing the Global Distribution System. GDS is the electronic
database that travel agents around the world use to research and book rooms in
hotels and resorts. Through an exclusive distribution and marketing agreement
with Interval International, Inc., the second largest marketing organization in
the timeshare industry with over 1,400 properties world-wide, ResortView(R) has
been designed to use video advertising in conjunction with the GDS to promote
lead generation and rental income for the resort developers.
Revenues are generated via an annual membership fee. In addition, we
receive a commission on each completed stay generated by the travel agents.
Current ResortView(R) properties include Harbour Lights in Myrtle Beach, South
Carolina, Newport Beachside Hotel and Resort in Miami Beach, The Royal Resorts
in Cancun, Mexico, Isle of Bali in Orlando, Florida, Fairfield Royal Vista in
Pompano Beach, Florida and Peppertree at Wild Wing in Conway, South Carolina.
AttractionView(TM) -- www.attractionview.com
Many vacation planners need more than just information about the
accommodations, and AttractionView(TM) has been designed as a natural complement
to HotelView(R) and ResortView(R).
AttractionView(TM) focuses on marrying the neighboring attractions, such as
amusement parks, theme parks, regional malls, and the like to the HotelView(R)
and ResortView(R) accommodations. We currently have over 25 AttractionView(TM)
videos on-line and available for viewing, including information on the United
Nations in New York, the Kennedy Space Center in Florida and Busch Gardens in
Tampa.
Revenues from the marketing of AttractionView(TM) will be generated through
an annual subscription fee, which includes the creation, storage and serving of
the video on the Internet, and per view revenues, which are paid by the
attraction, each time someone views the video on the Internet.
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GolfcourseView(TM) -- www.videoviewer.com
In April 1999, we acquired the Internet broadcast rights to a collection of
golf-related videos including approximately 200 course tours, instructional
videos and golf-related attractions from an unaffiliated third party.
GolfCourseView(TM), which is available on www.videoviewer.com, provides
full-motion tours of some of the world's most renowned golf courses and resorts
and related attractions, including Pebble Beach, Innisbrook and the Golf Hall of
Fame, as well as instructional videos and golf products and services.
Revenues will be generated through an annual subscription fee, which
includes the creation, storage and serving of the video on the Internet, and per
view revenues, which are paid by the golf course, each time someone views the
video on the Internet.
THE CORPORATE INFORMATION INDUSTRY
Video News Wire(TM) -- www.videonewswire.com
We created Video News Wire(TM) to service an agreement with PR Newswire
Corporation, the leading electronic distributor of corporate news releases.
Launched in 1998, Video News Wire(TM) creates and distributes television
news-like video press releases via the Internet. Video News Wire(TM) also
provides "About the Company" presentations and provides coverage of live
corporate events. Using a worldwide network of professional freelance camera
crews, Video News Wire(TM) can videotape press conferences and events almost
anywhere they might occur. In April 1999, we entered into an agreement with
Canada Newswire, Ltd., Canada's largest distributor of press releases.
In January 1999 we launched a new Video News Wire(TM) product which offers
publicly-traded companies a cost effective means to broadcast their analyst
conference calls live, making them available to the investing public, the media
and worldwide to anyone with Internet access. This audio "Webcast" service is
sold by PR Newswire. The Webcast can also be archived for audio replay for an
additional fee and the archived material can be accessed through a company's own
Website.
Revenues are generated through the production and storage of basic and
enhanced versions of video press releases, video corporate profiles and video
footage of events. Current Video News Wire(TM) clients include Chrysler
Corporation, Delta Airlines, McDonalds Corporation, Real Networks, Seagate
Technologies, Subway Sandwiches and Salads, United News and Media and Warner
Brothers.
In conjunction with our Video News Wire(TM) service, we are currently
developing a corporate news broadcast site on the Internet called
TheFirstNews.com. The goal of the new site is to provide a continuous audio
stream of corporate news as it is released over the various wire services. We
intend to also offer our Video News Wires, live audio and video events and other
corporate information. Users of the new service will be able to listen to all
the news stories of the day or identify specific industries or individual stocks
they wish to be informed about. When a press release, video news wire or other
event occurs they will be able to hear or see the information instantly. We
intend to make this new service available during the fourth quarter of fiscal
1999.
TalentView(TM) -- www.talentview.com
We have created our TalentView(TM) library with the goal of developing
Internet-based solutions designed expressly for the entertainment, advertising
and media industries. TalentView's(TM) initial online service, A* Cappella, is a
searchable, multimedia talent library of more than 1,500 professional voice
performers working in film, television, radio and
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other media applications. The service is available to the production community
via a secure, restricted Website at www.talentview.com.
Directed at casting professionals and producers, A* Cappella offers a
comprehensive talent classification and auditioning system whereby talent can be
compiled, sorted and selected by specific qualities and specialities through the
use of a search menu interface. Casting directors and producers can access and
review artist voice samples and resumes which include contact information. We
believe the service provides a promotional medium for talent, as well as an
efficient, cost-effective tool for those who hire talent. We also believe
TalentView(TM) offers certain synergy to our EDnet subsidiary and their clients
in the entertainment and advertising industries.
It is anticipated that our A* Cappella voice library will generate revenues
from both membership fees and advertising.
THE HEALTHCARE INDUSTRY
CareView(TM) -- www.careview.com
Our strategy is to make our CareView(TM) library a critical source of
information for hospital case managers in the long-term care facility selection
process. CareView(TM) places a complete personal computer package in the case
management department of selected hospitals at no cost to the hospital, other
than a telephone line. CareView(TM) systems are also placed at selected senior
citizen resource centers, providing better exposure for assisted living
facilities (most of whose admissions are not from hospitals).
Subscribing long-term care facilities are provided with a full-motion,
narrated video tour as well as a printable information sheet, e-mail links for
requesting more information, and a quick reference list of services and
amenities. We have implemented and are marketing the CareView(TM) system on a
geographic market-by-market basis, starting with the Southeast Florida and the
metro New York City markets. Our goal is to install CareView(TM) systems in 30
to 40 hospitals in each market. By concentrating on the larger hospitals, we
believe that we will be able to control access to a significant amount of the
hospitalized patients in each market. We have installed CareView(TM) in over 60
hospitals and senior resource centers in South Florida and metro New York City
and we have enrolled more than 55 long-term care facilities.
Revenues are generated through the payment of an annual fee by the
subscribing nursing home or assisted living facility.
MedicalView(TM) -- www.medicalview.com
We designed MedicalView(TM) to create multimedia presentations of medical
techniques, procedures and treatments, continuing education programs,
conferences and health related information. MedicalView(TM)'s content is being
developed through alliances with leading health and medical institutions and
organizations such as university-based medical centers, major teaching
hospitals, specialty treatment hospitals and disease specific associations,
including Johns Hopkins University and the American Society of Nephrology.
To date we have agreements to distribute MedicalView(TM) multimedia content
with Physicians' Online and Inteli-Health. Physicians' Online, which bills
itself as the world's largest Internet community of doctors with over 170,000
physicians on-line, provides a "physicians only" environment with medical
databases, clinical symposiums and discussion groups with national experts.
Physicians' Online estimates that approximately 15,000 physicians use the site
daily. Inteli-Health, a joint venture between Aetna U.S. Healthcare
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and Johns Hopkins University Medical School, provides consumer health
information to the general public and health care community. Additionally, in
March 1999, we signed a content agreement with George Blackburn MD, Ph.D.,
Associate Chief of Nutrition at Harvard Medical School to develop various
programs regarding nutrition, weight loss and other health related topics. We
will also seek to establish relationships with major pharmaceutical, medical
equipment and health care service companies to develop customized content for
distribution throughout the Internet, as well as to generate advertising and
sponsorship revenues.
Revenues are generated through corporate sponsorship, continuing education
program fees, subscription (production, storage, serving) and advertising.
OUR LIBRARIES UNDER DEVELOPMENT
ProductView(TM)
As e-commerce proliferates, we believe more and more consumers will be
turning to the Internet as both a source of information as well as an
alternative method of purchasing many consumer products. In order to effectively
compete, we believe thousands of products will need to be displayed in a rich
media format that will provide the consumer with detailed information on
purchasing, assembling and operating these products. We are designing
ProductView(TM) to address this perceived need by offering video taping, editing
and digitizing services to the manufacturers of products. In addition,
ProductView(TM) will archive the product information in easy-to-access
databases.
We will offer ProductView(TM) as our high quality, low cost video creation
capability to manufacturers and distributors of products and services not
currently using video as part of their marketing efforts, as well as provide
them with a video tool for use in creating functional overviews, assembly
instructions and in-store presentations.
We anticipate that the advertising and marketing plans for ProductView(TM)
will emphasize the need to add video to not only the manufacturer's Website, but
to thousands of cybermalls, catalog companies and other retailers on the
Internet. For clients with extensive product inventories, we anticipate offering
the option of mobile taping and editing studios to be temporarily located on
site at the manufacturer's warehouse or manufacturing facility.
Revenues will be generated through a subscription fee, which includes the
creation, storage and serving of the video on the Internet, and per view
revenues, which are paid by the manufacturer and distributor, each time someone
views the video on the Internet.
CampusView(TM)
With over 3,000 colleges and universities in the United States, making the
best choice of a college can be a daunting experience for the student and their
family. In some cases, the student is simply unable to visit the institution
prior to selection, and therefore must base his or her decision on various
brochures and word-of-mouth information. As we believe the selection of a
college or university is one of the most important decisions a student and his
or her family will make, we are designing the CampusView(TM) Website to provide
the students and their families with comprehensive information in order to offer
them the opportunity for more informed decision-making in the college selection
process. Our videos will provide two to three minute tours of the campus and the
various educational, social and sports programs the school wants to highlight.
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Our strategy is to initially videotape approximately 2,500 colleges and
universities in the United States. CampusView(TM) will be a pay-per-view service
available to both high schools and individual students. Revenues from
CampusView(TM) will be generated by charging students, their families and
schools based upon the number of views. In addition, we will sell advertising
and sponsorships on our Website. Our present plans anticipate a launch of the
CampusView(TM) library within six to 12 months following the closing of this
offering.
CruiseView(TM)
We are designing CruiseView(TM) to provide a detailed video tour of a
ship's guestrooms, common areas, recreational facilities and dining venues. As
the cruise market continues to grow, we believe cruise lines will need to
utilize a service like CruiseView(TM) to maximize their exposure to the travel
agents of the world. We intend to position CruiseView(TM) to take early
advantage of these opportunities as a result of our existing presence in the
travel agency networks.
We anticipate revenues will be generated through an annual subscription
fee, which includes the creation, storage and serving on the Internet, and per
view revenues, which are paid by the cruise line, each time someone views the
video on the Internet.
DestinationView(TM)
We are designing DestinationView(TM) as a collection of video clips
providing a detailed look at certain aspects of the destination, such as area
parks, meeting spaces, recreational facilities, dining spots, museums, and
shopping districts. Additionally, it is anticipated that these clips will
explore activities and day trips which are available to the visitor, including
golfing, skiing, wine appreciation and architecture walks, and will also include
briefs on available transportation entities (railway stations, airports, cruise
excursions, highways, etc.).
We have initially targeted the 150 most visited destinations and ports of
call. Our second focus is to target destinations that are most likely to market
via the Internet. It is anticipated that DestinationView's client base of local
city convention and visitor's bureaus, local boards of tourism, regional
consortiums and chambers of commerce will also be used to market our other
travel related libraries to their existing members.
Revenues are currently generated through subscriptions and per view
charges.
OTHER SERVICES
VideoViewer(TM) -- www.videoviewer.com
In March 1999, we launched the beta version of VideoViewer(TM), a
high-speed, video on demand network on the Internet. VideoViewer.com will enable
users of ISDNs, T1s, cable modems and other broadband services to access a
conduit to the growing world of original video content on the Web. The
VideoViewer(TM) design enables cable modem and telephone Internet Service
Providers to privately label the VideoViewer(TM) and personalize the site to
look as if it is their own. The site will enable these service providers to
clearly demonstrate to potential customers the need for higher bandwidth.
VideoViewer(TM) is a graphic representation of Interactive television.
Through VideoViewer.com, high bandwidth users will be able to access rich media
content on subjects including travel, business and finance, education, consumer
products, health and medicine, and entertainment and recreation. When you enter
the VideoViewer.com Website, you are
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presented with an introduction screen; after clicking the Enter button, the
VideoViewer(TM) will load the three media screens and the scrolling channel
guide onto the screen. As you place the cursor on any of the scrolling bars, a
text description appears and simultaneously an audio clip is played describing
the channel's contents. For example, clicking the "Travel" bar brings up the
various choices including the HotelView(R) selector; selecting a state or
country will then display the available cities. If you click the desired city,
you can choose to view videos of hotels located there, as well as other
selections including a list of nearby golf resorts, attractions, destination
tours or other related topics or subjects. Travel oriented commercials will be
displayed on the two smaller media screens while viewing related content.
Revenues are generated through syndication, per views, advertising fees and
video production of ads.
PRODUCTION AND BROADCAST SERVICES
With our advanced video production studios and worldwide freelance camera
crew network, we can provide complete end to end multi-media advertising
services such as:
- shoot, edit and produce a product presentation;
- digitize store and serve the presentation on the Internet;
- link to client's home page or distribute to various sites on the
Internet;
- if applicable, broadcast to television or other media; and
- monitor results and track performance.
OUR EDNET SUBSIDIARY
In June 1998, we acquired a 51% interest in Entertainment Digital Network,
Inc. (OTCBB: DNET). Based in California, EDnet develops and markets integrated
systems for the delivery, storage and management of professional quality digital
communications for media-based applications, including audio and video
production for the North American advertising and entertainment industry. EDnet
has established a private wide-area network (WAN) through strategic alliances
with long distance carriers, regional telephone companies, satellite operators
and independent fiber optic telecommunications providers, which enables the
exchange of high quality audio, compressed video and multimedia data
communications. EDnet provides engineering services, application-specific
technical advice, and audio, video and networking hardware and software as part
of its business. EDnet's client base of more than 500 companies includes
LucasFilms Skywalker Division, Sony Entertainment, Disney, MGM, Capitol Studios,
Warner Brothers, NFL Films and PGA Tour Productions. EDnet's recent projects
included the transmission of digitized audio during the post-production of such
feature films as Titanic, Antz, Saving Private Ryan and the new Star Wars
prequel, The Phantom Menace.
EDnet has recently teamed with Telestream, a manufacturer of high quality
video delivery systems, to provide EDnet customers the means to send high
quality video via the Internet and other Internet Protocol (IP) based WANS.
Under the terms of the agreement, EDnet will provide complete turnkey solutions,
bundling Telestream video equipment with their network services. This
relationship is anticipated to provide EDnet's entertainment and advertising
company clients the ability to cost effectively transmit their daily shots of
commercials, special effects, graphics, storyboards and animated shots,
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thereby providing a more dependable and faster delivery system than was
previously available.
In order to maintain the 51% interest acquired, we received an option to
purchase, at an exercise price of $.10 per share, the number of shares actually
purchased upon exercise of each option, warrant and other convertible security
of EDnet outstanding at the date of closing the EDnet transaction (the "EDnet
Stock Equivalents"). Based upon the number of EDnet Stock Equivalents
outstanding, we have the right to purchase up to an aggregate of 6,542,722
shares of EDnet's common stock. Our right to exercise the options shall accrue
on the date of issuance of shares of EDnet common stock upon exercise of the
corresponding outstanding EDnet Stock Equivalents and shall expire on the first
anniversary of the exercise date of each such outstanding EDnet Stock
Equivalent.
COMPETITION
The market for Internet broadcast services and video content is relatively
new, rapidly evolving and highly competitive. We expect our competition to
intensify. We compete with:
- other Websites, Internet portals and Internet broadcasters to acquire and
provide content to attract users;
- with video and audio conferencing companies and Internet business
services broadcasters;
- online services, other Website operators and advertising networks; and
- traditional media such as television, radio and print.
We cannot guarantee that we can effectively compete in any of these areas.
Although Visual Data believes it is the only Internet broadcaster offering an
end-to-end solution for production and serving digital video on the Internet, we
face substantial competition from a number of other companies, including local
production companies and other travel content Websites. We believe Visual Data
stands apart from its competitors in that they do not provide their customers
with production or editing services and they do not own the content that is
aggregated on their site. In contrast, we create and produce most of our content
and own virtually all the video and audio content on our Websites. See "Risk
Factors -- We may not be able to compete effectively in our industry" for a
further discussion of the competitive factors facing Visual Data.
GOVERNMENT REGULATION
Although there are currently few laws and regulations directly applicable
to the Internet, it is likely that new laws and regulations will be adopted in
the United States and elsewhere covering issues such as music licensing,
broadcast license fees, copyrights, privacy, pricing, sales taxes and
characteristics and quality of Internet services. It is possible that
governments will enact legislation that may be applicable to us in areas such as
content, network security, encryption and the use of key escrow, data and
privacy protection, electronic authentication or "digital" signatures, illegal
and harmful content, access charges and retransmission activities. Moreover, the
applicability to the Internet of existing laws governing issues such as property
ownership, content, taxation, defamation and personal privacy is uncertain. The
majority of such laws were adopted before the widespread use and
commercialization of the Internet and, as a result, do not contemplate or
address the unique issues of the Internet and related technologies. Any such
export or import restrictions, new legislation or regulation or governmental
enforcement of existing
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regulations may limit the growth of the Internet, increase our cost of doing
business or increase our legal exposure, which could have a material adverse
effect on our business, financial condition and results of operations.
By distributing content over the Internet, we face potential liability for
claims based on the nature and content of the materials that we distribute,
including claims for defamation, negligence or copyright, patent or trademark
infringement, which claims have been brought, and sometimes successfully
litigated, against Internet companies. To protect Visual Data from such claims,
we maintain general liability insurance. The general liability insurance may not
cover all potential claims of this type or may not be adequate to indemnify
Visual Data for any liability to which we may be imposed. Any liability not
covered by insurance or in excess of insurance coverage could have a material
adverse effect on our business, results of operations and financial condition.
See "Risk Factors -- We may become subject to burdensome government regulation."
INTELLECTUAL PROPERTY
Our success depends in part on our ability to protect our intellectual
property. To protect our proprietary rights, we rely generally on copyright,
trademark and trade secret laws, confidentiality agreements with employees and
third parties, and license agreements with consultants, vendors and customers,
although we have not signed such agreements in every case. Despite such
protections, a third party could, without authorization, copy or otherwise
obtain and use our content. We can give no assurance that our agreements with
employees, consultants and others who participate in development activities will
not be breached, or that we will have adequate remedies for any breach, or that
our trade secrets will not otherwise become known or independently developed by
competitors.
We pursue the registration of certain of our trademarks and service marks
in the United States, although we have not secured registration of all our
marks. In addition, the laws of some foreign countries do not protect our
proprietary rights to the same extent as do the laws of the United States, and
effective copyright, trademark and trade secret protection may not be available
in such jurisdictions. In general, there can be no assurance that our efforts to
protect our intellectual property rights through copyright, trademark and trade
secret laws will be effective to prevent misappropriation of our content. Our
failure or inability to protect our proprietary rights could materially
adversely affect our business, financial condition and results of operations.
See "Risk Factors -- Misappropriation of our intellectual property could impair
our competitive position."
FACILITIES
In September 1997, we purchased from an unaffiliated third party a 25,000
square foot facility in Pompano Beach, Florida which now serves as our corporate
headquarters and houses all of our production, marketing and distribution
activities, exclusive of our EDnet subsidiary. The aggregate purchase price paid
for the facility was $1,475,000, comprised of $475,000 in cash and an 18 month
first mortgage in the principal amount of $1,000,000, bearing interest at the
rate of 8.75% per annum, with 15 year amortization. In March 1999, we refinanced
our mortgage and extended the expiration date until September 30, 2002. In
addition, in connection with our purchase of 51% of EDnet, we granted EDnet a
second mortgage on our corporate headquarters as collateral for a promissory
note.
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EMPLOYEES
We currently have 54 full-time employees, of whom 22 are design, production
and technical personnel, 17 are sales and marketing personnel and 15 are
general, administrative and executive management personnel. None of the
employees are covered by a collective bargaining agreement and our management
considers relations with employees and consultants to be good. We also hire,
from time to time, subcontractors that develop our programming.
LEGAL PROCEEDINGS
We may from time to time become a party to various legal proceedings
arising in the ordinary course of business. We are not a party to any pending
or, to our knowledge, threatened material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors, and their ages are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Randy S. Selman(1).................... 43 Chief Executive Officer, President and
Chairman; Chairman of EDnet
Alan M. Saperstein.................... 40 Executive Vice President, Treasurer
and Director; Director of EDnet
Pauline Schneider..................... 43 Chief Financial Officer
Benjamin Swirsky(1)(2)................ 57 Director
Brian K. Service(1)(2)................ 51 Director; Director of EDnet
Eric Jacobs........................... 52 Secretary, Director; Director of EDnet
Robert J. Wussler(3).................. 60 Director (nominee)
</TABLE>
- ---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) To become a director upon approval by our shareholders at our annual meeting
to be held on July 16, 1999.
RANDY S. SELMAN. Since our inception in May 1993, Mr. Selman has served as
our Chief Executive Officer, President, and a director and from September 1996
through June 1999, as our Chief Financial Officer. Mr. Selman is also a member
of the Compensation Committee of the Board of Directors. Since July 1998 Mr.
Selman has been Chairman of the Board of EDnet. From March 1985 through May
1993, Mr. Selman was Chairman of the Board, President and Chief Executive
Officer of SK Technologies Corporation (OTC Bulletin Board: SKTC), a
publicly-traded software development company. SKTC develops and markets software
for point-of-sale with complete back office functions such as inventory, sales
analysis and communications. Mr. Selman founded SKTC in 1985 and was involved in
their initial public offering in 1989. Mr. Selman's responsibilities included
management of SKTC, public and investor relations, finance, high level sales and
general overall administration.
ALAN M. SAPERSTEIN. Mr. Saperstein has served as our Executive Vice
President, Treasurer and a director since our inception in May 1993. Mr.
Saperstein also serves as an alternate member of the Compensation Committee of
the Board of Directors. Since July 1998, Mr. Saperstein has been a member of the
Board of Directors of EDnet. From March 1989 until May 1993, Mr. Saperstein was
a free-lance producer of video film projects. Mr. Saperstein has provided
consulting services for corporations which have set up their own sales and
training video departments. From 1983 through 1989, Mr. Saperstein was the
Executive Director/Entertainment Division of NFL Films where he was responsible
for supervision of all projects, budgets, screenings and staffing.
PAULINE SCHNEIDER, CPA. Ms. Schneider joined Visual Data as Controller in
July 1995 and has served as Chief Financial Officer since July 1999. From
September 1988 through April 1993, and January 1995 through April 1995, Ms.
Schneider worked for Schmidt, Raines, Trieste, Dickenson & Adams, P.L. as a
Senior Accountant. From November 1993 to January 1995, Ms. Schneider served as
the Business Manager of the Harid Conservatory and was responsible for financial
reporting, security, transportation, risk management and facilities management.
Ms. Schneider received a B.A. in psychology from
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the University of Rochester and completed a concentration equivalent to a major
in accounting at Drake University.
BENJAMIN SWIRSKY. Mr. Swirsky has been a member of the Board of Directors
since July 1997 and serves on the Audit and Compensation Committees of the Board
of Directors. Mr. Swirsky is the owner of Beswir Properties Inc., an investment
capital company. Since June 1998, Mr. Swirsky has been Chairman and CEO of
Zconnect, an e-commerce company, where he serves as Chairman. From June 1993
until January 1998, Mr. Swirsky was President and Chief Executive Officer of
Slater Steel, Inc., a publicly-traded company listed on the (Toronto Stock
Exchange: SSI) with investments in the steel, steel service, forging, pole-line
hardware and trucking industries. Mr. Swirsky is Chairman of P.C.Docs
International, Inc., a major software company, a Canadian publicly-traded
company (Nasdaq: DOCSF, TSE: DXX) where he serves as Chairman. Mr. Swirsky is
also a member of the Board of Directors of the Four Seasons Hotel Corp., a chain
of first class hotels located throughout the world, and serves on the Audit,
Compensation and Governance committees of the Board. Mr. Swirsky also sits on
the Board of Directors of a number of other companies, including (i) CamVec
Corp., a Canadian publicly-traded company (CAT.CV), (ii) MigraTEC Inc., a
publicly-traded company (Nasdaq: MIGR) where he currently serves as Chairman,
(iii) Commercial Alcohols, Inc., in which he is also a principal shareholder,
(iv) Bee Line Monorail Systems, Inc., (v) Peregrine Industries, Inc. (OTC
Bulletin Board: HVAC), (vi) Kaledon.com, Inc., where he currently serves as
Chairman, and (vii) Don Bell Corporation.
BRIAN K. SERVICE. Mr. Service has been a member of our Board of Directors
since July 1997 and serves on the Audit and Compensation Committees of the Board
of Directors. Since August 1998 Mr. Service has been a Director of EDnet. Mr.
Service is currently an international business consultant with clients in North
and South America, the United Kingdom, Asia, Australia and New Zealand. From
October 1992 to October 1994, Mr. Service was CEO and Managing Director of
Salmond Smith Biolad, a New Zealand publicly-traded company. From October 1986
to October 1992, he was CEO and Executive Chairman of Milk Products Holding
(North America) Inc., a wholly-owned subsidiary of the New Zealand Dairy Board
in Santa Rosa California, which was the sole marketer of New Zealand dairy
products in North America.
ERIC JACOBS. Mr. Jacobs has been a member of the Board of Directors since
July 1997 and has served as Secretary since February 1999. From March 1996 until
August 1997, Mr. Jacobs was Vice President and General Manager of our wholly
owned subsidiary, HotelView(R) Corporation and thereafter he has served as Vice
President and General Manager of our wholly owned subsidiary, ResortView
Corporation. Since October 1998, Mr. Jacobs has been a member of the Board of
Directors of EDnet. Since 1976, Mr. Jacobs has served as the Chairman of the
Miami Beach Visitor and Convention Authority and since September 1995 as
Chairman of the Greater Miami and the Beaches Hotel Association. Since 1972, Mr.
Jacobs has been a member of Miami Beach Chamber of Commerce and has served as
its Chairman since September 1996. From 1972 through October 1993, Mr. Jacobs
was the owner of, and served as President and General Manager of, the Tarleton
Hotel, Miami Beach, Florida.
ROBERT J. WUSSLER. Mr. Wussler has served as a Director of EDnet since
1995. Since June 1998 he has served as Chairman, Chief Executive Officer and
President of U.S. Digital Communications, Inc., a global satellite
communications firm that specializes in corporate applications. From June 1995
to May 1998, Mr. Wussler was President and
44
<PAGE> 46
Chief Executive Officer of Affiliate Enterprises, Inc., the company formed by
ABC Television affiliates to pursue new business opportunities, including
emerging technology applications. From 1989 to 1992, he was President and Chief
Executive Officer of COMSAT Video Enterprises, where he managed the acquisition
of the NBA Denver Nuggets. Previously, from 1980 to 1990, he was Senior Vice
President of Turner Broadcasting, where he oversaw the launch of CNN, Headline
News and TNT, in addition to serving as President of SuperStation TBS, and from
1974 to 1978 he was the President of CBS Television Network and CBS Sports.
KEY EMPLOYEES
DAVID B. CHESTLER. Mr. Chestler, 36, has been General Manager of HotelView
Corporation since November 1997. From August 1989 until October 1997, Mr.
Chestler was employed at Utell International, a leading hotel reservation, sales
and marketing company, serving as Regional Director for the Eastern Region and
as Vice President of Sales & Development, North America. Mr. Chestler received a
B.S. degree from Florida International University.
BRYAN CARMODY. Mr. Carmody, 41, joined Visual Data in June 1998 as General
Manager of our TalentView division. From October 1995 until June 1998, Mr.
Carmody was employed in the entertainment industry. During this time he worked
as a professional voice-over artist providing commercial and industrial
narratives for TV, radio and film. His clients included Pizza Hut Corporation,
Fox Television, General Motors, Suzuki and the Discovery Channel. Mr. Carmody
also wrote and produced a number of independent film projects during this time
period. In September 1993, Mr. Carmody joined St. Jon/VRX Pharmaceuticals of
Harbor City, California as Vice President and National Sales Manager where he
continued in the capacity until September 1995. Mr. Carmody received a B.S.
degree from Union College.
JOHN J. HILL. Mr. Hill, 47, has been the General Manager of CareView
Corporation since December 1997. From July 1996 until November 1997, Mr. Hill
performed consulting services within the healthcare industry. Prior thereto Mr.
Hill has held executive management positions of various companies including
Emergency Consultants, a physician practice management group, from January 1994
until June 1996, SurgiCare America, an operator of ambulatory surgery centers
from September 1991 to January 1993, and CarePlus, a provider of home healthcare
services, from September 1984 to September 1991. Mr. Hill received a B.B.A. in
Marketing from Florida International University.
RYAN J. SHAHOUD. Mr. Shahoud, 28, joined Visual Data in November 1997 as a
Software Engineer and System Administrator and has served as Director of Systems
and Development since December 1998. From September 1995 through November 1997,
Mr. Shahoud was a principal of Armigeron Information Services Inc., an Internet
Service Provider that provides customer programming and web hosting services,
where he served as CTO, Software Engineer, and Systems Administrator. From May
1995 through September 1995, Mr. Shahoud worked as a Systems Administrator for
W.R. Grace & Company and from August 1994 through June 1995, Mr. Shahoud worked
as a Computer Operator for Sensormatic Electronics. Mr. Shahoud received a B.S.
in Computer Science from Florida Atlantic University.
GLEN UDINE. Mr. Udine, 42, joined Visual Data in December 1998 as the
General Manager of the MedicalView division. From October 1995 to November 1998,
Mr. Udine was President of Novus Healthcare, Inc. a home health care and
physician practice management firm. From April 1993 until September 1995, Mr.
Udine was Regional Vice
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<PAGE> 47
President with Coram Healthcare Corporation, one of the largest home healthcare
providers in the U.S. He was previously a Vice President and principal with
Clinical Homecare Corporation from April 1986 to March 1993. Mr. Udine received
a B.S. degree from Syracuse University.
TOM KOBAYASHI, 70, has served as Chief Executive Officer and a Director of
EDnet from 1992 to the present. From June 1992 to July 1998, Mr. Kobayashi
served as the Chairman of the Board of Directors of EDnet. From 1986 to 1993, he
was Vice President and General Manager of Skywalker Sound division of LucasArts.
Mr. Kobayashi is a member of the American Engineering Society, the Society of
Motion Picture and Television Engineers, the Society of Professional Audio
Recording Studios, the Academy of Motion Picture Arts and Sciences and the
Academy of Television Arts and Sciences. Mr. Kobayashi earned a Bachelor of
Science degree at the University of Southern California.
DAVID GUSTAFSON, 52, has served as the President and Chief Operating
Officer of EDnet from March 1996 to the present, and as Vice President,
Marketing and Sales, from July 1992 to March 1996. He has served as a Director
of EDnet since 1992. Previously, from July 1989 to June 1992 he was President
and Chief Operating Officer of SLT, Inc., a private New York-based apparel
manufacturer and from February 1985 to June 1989 he served as Corporate Vice
President and Director of Wacoal America, Inc., a division of Wacoal Corp., a
multi-national consumer products company based in Kyoto, Japan, where his
responsibilities included merchandising and design, sales, marketing and
advertising. Mr. Gustafson received his Bachelors degree from Westmont College.
THOMAS SCOTT, 55, has served as the Vice President-Chief Technology Officer
of EDnet since 1992. From 1985 to 1992, he was Chief Engineer for Skywalker
Sound, the post production division of LucasArts/Lucasfilm Ltd. Mr. Scott
received two Oscar Academy Awards for Best Sound on the films The Right Stuff
and Amadeus. Mr. Scott earned his Bachelor of Science degree from the
Massachusetts Institute of Technology.
There is no family relationship between any of the executive officers and
directors. Each director is elected at our annual meeting of shareholders and
holds office until the next annual meeting of shareholders, or until his
successor is elected and qualified. At present, our bylaws provide for not less
than two directors. The bylaws permit the Board of Directors to fill any vacancy
and such director may serve until the next annual meeting of shareholders or
until his successor is elected and qualified. Officers are elected annually by
the Board of Directors and their terms of office are at the discretion of the
Board. Our officers devote full time to our business.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During our fiscal year ended September 30, 1998, our Board of Directors
held seven (7) meetings and took action an additional seven (7) times by
unanimous written consent. Each member of the Board participated in each action
of the Board.
Our Board of Directors have established a Compensation Committee and an
Audit Committee. The Compensation Committee administers our stock option plan
and makes recommendations to the Board of Directors concerning compensation,
including incentive arrangements, of our officers and key employees. The members
of the Compensation Committee are Randy S. Selman, Benjamin Swirsky and Brian K.
Service. During the year ended September 30, 1998, the Compensation Committee
held one (1) meeting. The Audit Committee reviews the engagement of the
independent accountants and reviews the
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<PAGE> 48
independence of the accounting firm. The Audit Committee also reviews the audit
and non-audit fees of the independent accountants and the adequacy of our
internal accounting controls. The members of the Audit Committee are Benjamin
Swirsky and Brian K. Service. During the year ended September 30, 1998, the
Audit Committee held one (1) meeting. The Compensation Committee and the Audit
Committee consist of a majority of independent directors.
DIRECTORS' COMPENSATION
Directors who are not our employees receive $1,000 per meeting as
compensation for serving on the Board of Directors, as well as reimbursement of
reasonable out-of-pocket expenses incurred in connection with their attendance
at Board of Directors' meetings.
On July 30, 1997, we granted to each of Messrs. Service and Swirsky options
to each acquire 100,000 shares of our common stock at an exercise price of
$2.125 per share. The term of these options is five years from the date of
grant, with 50,000 options vesting on the first anniversary of the date of
grant, 25,000 vesting on the second anniversary of the date of grant and the
remaining 25,000 vesting on the third anniversary of the date of grant. Once
vested, the options remain exercisable. In the event, however, either Mr.
Service or Mr. Swirsky are not members of our Board of Directors at the time the
options vest, they will no longer be entitled to receive such options.
On January 9, 1998, as amended, we granted Mr. Jacobs options to acquire
50,000 shares of our common stock at an exercise price of $2.125 per share. The
term of these options is five years from the date of grant. These options are
fully vested and remain exercisable until the expiration date thereof.
EXECUTIVE COMPENSATION
The following table sets forth certain information relating to the
compensation of (i) our Chief Executive Officer; and (ii) each of our executive
officers who earned more than $100,000 during the fiscal year ended September
30, 1998 (collectively, the "Named Executive Officers"):
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION AWARDS
---------------- ---------------------------
NAME AND OTHER ANNUAL RESTRICTED OPTIONS ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION STOCK AWDS SARS(#) LTIP COMPENSATION
- ------------------ ---- -------- ----- ------------ ---------- ------- ---- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Randy S. Selman,...... 1998 $138,363 -0- $ 9,613(1) -0- -0- -0- -0-
President, Chief 1997 $117,950 -0- $ 7,500(2) -0- -0- -0- -0-
Executive Officer 1996 $ 83,000 -0- $ 2,093(3) -0- 137,230 -0- -0-
and Director
Alan Saperstein,...... 1998 $138,363 -0- $13,969(4) -0- -0- -0- -0-
Vice President, 1997 $117,950 -0- $10,830(5) -0- -0- -0- -0-
Treasurer and 1996 $ 83,000 -0- $ 5,927(6) -0- 137,230 -0- -0-
Director
David E. Goodman(7)... 1998 $135,846 -0- $ 7,521(8) -0- -0- -0- -0-
Executive Vice 1997 $ 18,230 -0- $ 900(9) -0- -0- -0- -0-
President and 1996 $ -0- -0- $ -0- -0- -0- -0- -0-
Chief Operating
Officer
</TABLE>
- -------------------------
(1) Includes $511 for disability insurance, $1,902 for medical insurance and a
$7,200 automobile allowance.
(2) Includes $672 for disability insurance, $1,428 for medical insurance and a
$5,400 automobile allowance.
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<PAGE> 49
(3) Includes $569 for disability insurance and $1,524 for medical insurance.
(4) Includes $321 for disability insurance, $6,448 for medical insurance and a
$7,200 automobile allowance.
(5) Includes $424 for disability insurance and $5,006 for medical insurance and
a $5,400 automobile allowance.
(6) Includes $424 for disability insurance and $5,503 for medical insurance.
(7) Mr. Goodman served in such position from August 1997 until October 1998.
(8) Includes $321 for disability insurance and a $7,200 automobile allowance.
(9) Includes a $900 automobile allowance.
EMPLOYMENT AGREEMENTS
Effective January 9, 1998, we entered into amended and restated employment
agreements with Randy S. Selman, our Chief Executive Officer, President, acting
Chief Financial Officer, and a director, and with Alan Saperstein, our Executive
Vice President, Treasurer and a director. The agreements with each of Messrs.
Selman and Saperstein are substantially similar and superseded in their entirety
previous employment agreements with each of Messrs. Selman and Saperstein. The
term of the agreement is for three years from the effective date of the
agreements and is renewable for successive one year terms unless terminated. The
annual salary under each of the agreements is $137,500, which amount will be
increased by 10% each year. Messrs. Selman and Saperstein are also each eligible
to receive an annual bonus in cash or stock equal to 2% of our earnings before
income tax, depreciation and amortization (EBITDA) on that portion of EBITDA
that has increased over the previous year's EBITDA.
Additionally, each of Messrs. Selman and Saperstein were granted options
(which contain certain anti-dilution provisions) to purchase 375,000 shares of
common stock at $2.125 per share, vesting 125,000 options on each anniversary
date of the effective date of each of the agreements. The options, which are
exercisable for a period of four years from the vesting date, automatically vest
upon the occurrence of certain events, including a change in control,
constructive termination (as defined in the agreements) of the employee, or the
termination of the employee other than for cause.
The agreements also provide, among other things, for (i) participation in
any profit-sharing or retirement plan and in other employee benefits applicable
to our employees and executives, (ii) an automobile allowance and fringe
benefits commensurate with the duties and responsibilities of Messrs. Selman and
Saperstein, (iii) benefits in the event of disability and (iv) contain certain
non-disclosure and non-competition provisions. Additionally, Messrs. Selman and
Saperstein may be granted certain bonus incentives by our Board of Directors.
Furthermore, we have agreed to indemnify each of them for any obligations or
guaranties which either of them may have undertaken on our behalf.
Under the terms of the agreements, we may terminate the employment of Mr.
Selman or Mr. Saperstein either with or without cause. If the Agreements are
terminated by us without good cause, or by Mr. Selman or Mr. Saperstein with
good cause, as applicable, we would be obligated to pay that executive an amount
equal to three times that executive's current annual compensation (including
base salary and bonus), payable in bi-weekly installments (except in the case of
a termination upon a change in control wherein the executive may elect either a
lump sum payment, discounted to present market value or payment over a three
year period in bi-weekly installments). Additionally, the executive would be
entitled to participate in and accrue medical benefits for a period of
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<PAGE> 50
two years after the date of termination without cause (by us) or for good cause
(by the executive). To the extent that either Messrs. Selman or Saperstein are
terminated for cause, no severance benefits shall be paid.
STOCK OPTION INFORMATION
The following table sets forth certain information with respect to stock
options granted in fiscal 1998 to the Named Executive Officers.
OPTION GRANTS IN YEAR ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------
NO. OF SECURITIES % OF TOTAL OPTIONS
UNDERLYING GRANTED TO EMPLOYEES EXERCISE EXPIRATION
NAME OPTIONS GRANTED IN FISCAL YEAR PRICE DATE
- ---- ----------------- -------------------- -------- ----------------
<S> <C> <C> <C> <C>
Randy S. Selman,
President, Chief
Executive Officer
and Director....... 375,000(1) 31.25% $2.125(1) (4)
Alan Saperstein, Vice
President,
Secretary and
Director........... 375,000(2) 31.25% $2.125(2) (4)
David E. Goodman,
Executive Vice
President and Chief
Operating
Officer............ 400,000(3) 33.3% $ 2.50(3) October 23, 2002
</TABLE>
- -------------------------
(1) Granted under the terms of the employment agreement between Mr. Selman and
us. Of such amount, 125,000 options vested on January 8, 1999, and 125,000
options will vest on each of January 8, 2000 and January 8, 2001. All vested
options remain unexercised as of July 2, 1999. The options automatically
vest and are immediately exercisable in the event of a change of control,
constructive termination of Mr. Selman or termination of Mr. Selman by us
other than for cause. The initial exercise price of the options was $2.50;
in November 1998 the Board of Directors reduced the exercise price to $2.125
as a result of the decline in the market price of our common stock and to
continue to provide incentives to senior management.
(2) Granted under the terms of the employment agreement between Mr. Saperstein
and us. Of such amount, 125,000 options vested on January 8, 1999, and
125,000 options will vest on each of January 8, 2000 and January 8, 2001.
All vested options remain unexercised as of July 2, 1999. The options
automatically vest and are immediately exercisable in the event of a change
of control, constructive termination of Mr. Saperstein or termination of Mr.
Saperstein by us other than for cause. The initial exercise price of the
options was $2.50; in November 1998 the Board of Directors reduced the
exercise price to $2.125 as a result of the decline in the market price of
our common stock and to continue to provide incentive to senior management.
(3) Mr. Goodman served as our Chief Operating Officer until October 1998. The
options are exercisable until October 23, 2002 at an exercise price of $2.50
per share. In October 1998, pursuant to a severance agreement, 300,000
options vested and 100,000 options were canceled.
(4) The options are exercisable for four years from the vesting date.
49
<PAGE> 51
In November 1998, we granted each of Messrs. Selman and Saperstein options
to acquire 700,000 shares of our common stock, at an exercise price of $2.125
per share, as part of the executive bonus program. Of these options, 250,000
vested as a result of the successful completion of the acquisition of EDnet and
the remaining 450,000 options to purchase common stock shall vest upon the
earlier of November 19, 2004 or the occurrence of any of the following: (i) we
sell or merge with another entity whereby more than 25% of our outstanding
common stock changes ownership; (ii) sales of all, or substantially all, of our
assets, or of the assets of any of our divisions, where the proceeds from such
sale exceed $20 million; (iii) we receive a substantial financing from either
private or public funding where the proceeds from such financing exceed $20
million; (iv) we generate a year end pre-tax profit in excess of $3 million in
any of the next three years; or (v) upon achieving goals and objectives as
determined by the board of directors. On June 16, 1999 we repriced the 450,000
unvested options to $16.00 per share.
Also in November 1998, we granted each of Messrs. Swirsky and Service
options to acquire 50,000 shares of our common stock, at an exercise price of
$2.125 per share as part of the executive bonus program. All of such shares
shall vest upon the earlier of November 19, 2004 or the occurrence of any of the
following: (i) we sell or merge with another entity whereby more than 25% of our
outstanding common stock changes ownership; (ii) sales of all, or substantially
all, of our assets, or of the assets of any of our divisions, where the proceeds
from such sale exceed $20 million; (iii) we receive a substantial financing from
either private or public funding where the proceeds from such financing exceed
$20 million; (iv) we generate a year end pre-tax profit in excess of $3 million
in any of the next three years; or (v) upon achieving certain goals and
objectives as determined by the board of directors. On June 16, 1999, we
repriced these options to $16.00 per share.
Except for options issued in connection with the EDnet transaction, all of
these options were granted under the 1996 Stock Option Plan, subject to
shareholder approval of an amendment to such plan increasing the number of
shares under the plan. See "Management -- 1996 Stock Option Plan."
The following table sets forth certain information regarding stock options
held as of September 30, 1998 by the Named Executive Officers.
AGGREGATE OPTION EXERCISES IN YEAR ENDED SEPTEMBER 30, 1998
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NO. OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED SEPTEMBER 30, 1998 SEPTEMBER 30, 1998(1)
ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Randy S. Selman,
President, Chief
Executive Officer
and Director........ -0- n/a 387,230(2) 375,000 $374,188 $46,875
Alan Saperstein, Vice
President, Secretary
and Director........ -0- n/a 387,230(2) 375,000 $374,188 $46,875
</TABLE>
50
<PAGE> 52
<TABLE>
<CAPTION>
NO. OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED SEPTEMBER 30, 1998 SEPTEMBER 30, 1998(1)
ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David E. Goodman,
Executive Vice
President and Chief
Operating
Officer(3).......... -0- n/a 100,000 400,000 $ 12,500 $50,000
</TABLE>
- -------------------------
(1) The dollar value of the unexercised in-the-money options is calculated based
upon the difference between the option exercise price and $2.625 per share,
being the closing price of our common stock on September 30, 1998 as
reported The Nasdaq SmallCap Market.
(2) Of such exercisable options, at September 30, 1998, 137,230 options were
exercisable at $.00016 per share and the remaining 250,000 options were
exercisable at $2.50 per share. All Unexercisable options have an exercise
price of $2.50 per share at September 30, 1998. See Option Grants in Year
Ended September 30, 1998 above.
(3) Mr. Goodman was our Chief Operating Officer until October 1998. The options
are exercisable at $2.50 per share. See Option Grants in Year Ended
September 30, 1998 above.
1996 STOCK OPTION PLAN
On February 9, 1997, the Board of Directors and a majority of our
shareholders adopted our 1996 Stock Option Plan (the "Plan"). The purpose of the
Plan is to increase the employees', advisors', consultants' and non-employee
directors' proprietary interest in us and to align more closely their interests
with the interests of our shareholders. The purpose of the Plan is also to
enable us to attract and retain the services of experienced and highly qualified
employees and non-employee directors.
We have reserved an aggregate of 200,000 shares of common stock for
issuance pursuant to options granted under the Plan ("Plan Options"). We will
submit a proposal at our 1999 Annual Meeting of Shareholders to increase the
Plan to 2,500,000 shares. We expect our 1998 Annual Meeting to be held in July
1999. As of the date of this prospectus, 1,062,450 options have been granted
under the Plan, 1,000,000 of which are subject to the approval of the increase
in shares available under the Plan. Such options were issued to our directors,
employees and consultants at exercise prices ranging from $2.125 to $16.00 per
share. The Board of Directors or a Committee of the Board of Directors (the
"Committee") will administer the Plan including, without limitation, the
selection of the persons who will be granted Plan Options under the Plan, the
type of Plan Options to be granted, the number of shares subject to each Plan
Option and the Plan Option price. As of this date, the Board of Directors has
not established a separate Committee.
Plan Options granted under the Plan may either be options qualifying as
incentive stock options ("Incentive Options") under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), or options that do not so qualify
("Non-Qualified Options"). In addition, the Plan also allows for the inclusion
of a reload option provision ("Reload Option"), which permits an eligible person
to pay the exercise price of the Plan Option with shares of common stock owned
by the eligible person and to receive a new Plan Option to purchase shares of
common stock equal in number to the tendered shares.
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<PAGE> 53
Any Incentive Option granted under the Plan must provide for an exercise price
of not less than 100% of the fair market value of the underlying shares on the
date of such grant, but the exercise price of any Incentive Option granted to an
eligible employee owning more than 10% of our common stock must be at least 110%
of such fair market value as determined on the date of the grant.
The term of each Plan Option and the manner in which it may be exercised is
determined by the Board of Directors or the Committee, provided that no Plan
Option may be exercisable more than 10 years after the date of its grant and, in
the case of an Incentive Option granted to an eligible employee owning more than
10% of our common stock, no more than five years after the date of the grant. In
any case, the exercise price of any stock option granted under the Plan will not
be less than 85% of the fair market value of the common stock on the date of
grant. The exercise price of Non-Qualified Options shall be determined by the
Board of Directors or the Committee.
The per share purchase price of shares subject to Plan Options granted
under the Plan may be adjusted in the event of certain changes in our
capitalization, but any such adjustment shall not change the total purchase
price payable upon the exercise in full of Plan Options granted under the Plan.
Officers, directors and key employees of and consultants to us and our
subsidiaries will be eligible to receive Non-Qualified Options under the Plan.
Only our officers, directors and employees who are employed by us or by any of
our subsidiaries thereof are eligible to receive Incentive Options.
All Plan Options are nonassignable and nontransferable, except by will or
by the laws of descent and distribution and, during the lifetime of the
optionee, may be exercised only by such optionee. If an optionee's employment is
terminated for any reason, other than his death or disability or termination for
cause, or if an optionee is not our employee but is a member of our Board of
Directors and his service as a Director is terminated for any reason, other than
death or disability, the Plan Option granted may be exercised on the earlier of
the expiration date or 30 days following the date of termination. If the
optionee dies during the term of his employment, the Plan Option granted to him
shall lapse to the extent unexercised on the earlier of the expiration date of
the Plan Option or the date one year following the date of the optionee's death.
If the optionee is permanently and totally disabled within the meaning of
Section 22(c)(3) of the Code, the Plan Option granted to him lapses to the
extent unexercised on the earlier of the expiration date of the option or one
year following the date of such disability.
The Board of Directors or the Committee may amend, suspend or terminate the
Plan at any time, except that no amendment shall be made which (i) increases the
total number of shares subject to the Plan or changes the minimum purchase price
therefor (except in either case in the event of adjustments due to changes in
our capitalization), (ii) affects outstanding Plan Options or any exercise right
thereunder, (iii) extends the term of any Plan Option beyond ten years, or (iv)
extends the termination date of the Plan.
Unless the Plan shall be earlier suspended or terminated by the Board of
Directors, the Plan shall terminate on approximately 10 years from the date of
the Plan's adoption. Any such termination of the Plan shall not affect the
validity of any Plan Options previously granted thereunder.
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<PAGE> 54
CERTAIN TRANSACTIONS
In February 1997, as a bonus for achieving certain performance goals, we
granted each of Messrs. Selman and Saperstein, our executive officers and
directors, options to acquire 137,230 shares of our common stock at an exercise
price of $.00016 per share as a bonus.
In August 1998, Eric Jacobs, a director of both Visual Data and EDnet, lent
EDnet $200,000 under a one year unsecured promissory note bearing interest at
12% per annum. Such funds were used by EDnet for general working capital. As
additional consideration for such loan, Mr. Jacobs received a warrant to
purchase 50,000 shares of EDnet's common stock at an exercise price of $.20 per
share. Such loan was repaid in full by EDnet on January 8, 1999 and the warrants
were exercised on April 7, 1999.
Beginning March 1999, EDnet has paid to us a management fee in the amount
of approximately $4,167 per month. Based upon the services provided by Randy
Selman and Alan Saperstein, Messrs. Selman and Saperstein are being paid a fee
by us equal to the fee paid by EDnet.
Except as disclosed above or pursuant to an employment agreement, granting
of stock options, or director or consulting fees, there are no other certain
transactions.
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<PAGE> 55
PRINCIPAL AND SELLING SHAREHOLDERS
The following table contains information regarding beneficial ownership of
our common stock as of May 20, 1999 held by (i) persons who own beneficially
more than 5% of our outstanding common stock, (ii) our directors, (iii) Named
Executive Officers and (iv) all of our directors and officers as a group. The
table also represents the same information as adjusted to reflect the sale of
shares offered hereby.
<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK BENEFICIALLY SHARES OF COMMON STOCK
OWNED PRIOR TO THE BENEFICIALLY OWNED AFTER
OFFERING(2) THE OFFERING(2)
NAME AND ADDRESS OF ---------------------- SHARES -------------------------
OF BENEFICIAL OWNER(1) NUMBER PERCENTAGE BEING OFFERED(3) NUMBER PERCENTAGE(4)
- ---------------------- --------- ---------- ---------------- --------- -------------
<S> <C> <C> <C> <C> <C>
Randy S. Selman(5)....... 865,849 11.7% 250,000 615,849 7.0%
Alan M. Saperstein(6).... 887,173 12.0 250,000 637,173 7.2
Benjamin Swirsky(7)...... 50,000 * 25,000 25,000 *
Brian K. Service(8)...... 110,938 1.6 40,000 70,938 *
Eric Jacobs(9)........... 113,600 1.7 40,000 73,600 *
Pauline Schneider(10).... 41,089 * 20,000 21,089 *
Bryan Carmody(11)........ 15,000 * 5,000 10,000 *
David Chestler(12)....... 25,000 * 20,000 5,000 *
Pete Conomikes(13)....... 5,100 * 5,000 100 *
David Dubin(14).......... 5,150 * 5,000 150 *
John J. Hill(15)......... 25,200 * 20,000 5,200 *
Gary Reich(16)........... 11,806 * 5,000 6,806 *
Mark Schneider(17)....... 6,139 * 5,000 1,139 *
Ryan Shahoud(18)......... 12,500 * 5,000 7,500 *
Joanne Tepper(19)........ 6,179 * 5,000 1,179 *
Robert Wussler(20)....... -- -- -- -- --
All Directors and
Officers
(6 persons)(21)........ 2,068,649 24.5% 625,000 1,443,649 15.0%
</TABLE>
- -------------------------
* Less than 1%
(1) Unless otherwise indicated, the address of each of the listed beneficial
owners identified is c/o Visual Data Corporation, 1291 Southwest 29th
Avenue, Pompano Beach, Florida 33069. Unless otherwise noted, we believe
that all persons named in the table have sole voting and investment power
with respect to all shares of our common stock beneficially owned by them.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired by such a person within sixty days from the date of this
Prospectus upon exercise of options, warrants or convertible securities.
Each beneficial owner's percentage ownership is determined by assuming that
options, warrants and convertible securities that are held by such a person
(but not those held by any other person) and are exercisable within sixty
days from the date of this Prospectus have been exercised. As of May 20,
1999 there were 6,630,019 shares of common stock outstanding.
(3) Includes the exercise of the underwriters' over-allotment option.
(4) Gives effect to the sale of 1,600,000 shares of common stock we are
offering under this prospectus.
54
<PAGE> 56
(5) This amount includes options to acquire an aggregate of 137,230 shares of
common stock at an exercise price of $.00016 per share and options to
acquire an aggregate of 625,000 shares of common stock at an exercise price
of $2.125 per share. Excludes options to purchase 250,000 shares of common
stock at an exercise price of $2.125 per share and options to purchase
450,000 shares of common stock at an exercise price of $16.00 per share,
all of which have not yet vested. See "Management -- Executive
Compensation."
(6) This amount includes options to acquire an aggregate of 137,230 shares of
common stock at an exercise price of $.00016 per share and options to
acquire an aggregate of 625,000 shares of common stock at an exercise price
of $2.125 per share. Excludes options to purchase 250,000 shares of common
stock at an exercise price of $2.125 per share and options to purchase
450,000 shares of common stock at an exercise price of $16.00 per share,
all of which have not yet vested. See "Management -- Executive
Compensation."
(7) This amount includes options to purchase 50,000 shares at $2.125 per share,
but excludes options to acquire 50,000 shares of common stock at an
exercise price of $2.125 per share which were granted in August 1997
immediately following our initial public offering and options to acquire
50,000 shares of common stock at an exercise price of $16.00 which were
granted in November 1998 and subsequently repriced in June 1999, all of
which have not yet vested. Mr. Swirsky's address is 350 Fairlawn Avenue,
Toronto, Ontario, Canada.
(8) This amount includes options to purchase 50,000 shares at $2.125 per share
and warrants to purchase an additional 25,000 shares at $3.00. Excludes
options to acquire an aggregate of 50,000 shares of common stock at an
exercise price of $2.125 per share which were granted in August 1997
immediately following our initial public offering and options to acquire
50,000 shares of common stock at an exercise price of $16.00 which were
granted in November 1998 and subsequently repriced in June 1999, all of
which have not yet vested. Mr. Service's address is 123 Red Hill Circle,
Tiburon, CA 94920.
(9) This amount includes options to acquire an aggregate of 100,000 shares of
common stock at an exercise price of $2.125 per share of which 50,000 were
granted in January 1998 and 50,000 were granted in November 1998 and
excludes options to purchase 25,000 shares of common stock at $2.125 that
have not vested.
(10) Includes options to purchase 40,500 shares of common stock at $2.125 per
share and excludes options to purchase 30,000 shares of common stock at
$2.125 that have not yet vested. Does not include 489 shares of common
stock and options to purchase 5,650 shares of common stock at $2.125 per
share owned by Ms. Schneider's husband for which she disclaims beneficial
ownership.
(11) Includes options to purchase 15,000 shares of common stock at $2.125 and
excludes options to purchase 30,000 shares of common stock at $2.125 that
have not yet vested.
(12) Includes options to purchase 25,000 shares of common stock at $2.125 per
share and excludes options to purchase 50,000 shares of common stock at
$2.125 that have not yet vested.
(13) Includes options to purchase 5,000 shares of common stock at $2.125 per
share.
(14) Includes options to purchase 5,150 shares of common stock at $2.125 per
share and excludes options to purchase 5,000 shares of common stock at
$2.125 that have not yet vested.
55
<PAGE> 57
(15) Includes options to purchase 15,000 shares of common stock at $2.125 per
share, options to purchase 10,000 shares of common stock at $11.25, 200
warrants purchased in the open market exercisable at $6.00 and excludes
options to purchase 30,000 shares of common stock at $2.125 that have not
yet vested.
(16) Includes options to purchase 10,150 shares of common stock at $2.125 per
share and excludes options to purchase 10,000 shares of common stock at
$2.125 that have not yet vested.
(17) Includes options to purchase 5,650 shares of common stock at $2.125 per
share.
(18) Includes options to purchase 12,500 shares of common stock at $2.125 per
share and excludes options to purchase 10,000 shares of common stock at
$2.125 that have not yet vested.
(19) Includes options to purchase 5,750 shares of common stock at $2.125 per
share.
(20) Mr. Wussler is a nominee for director.
(21) See notes (5) -- (10) above.
DESCRIPTION OF SECURITIES
GENERAL
We are authorized to issue up to 20,000,000 shares of common stock, par
value $.0001 and 5,000,000 shares of preferred stock, par value $.0001 per
share. The following description of our capital stock is not complete and is
qualified in its entirety by our Articles of Incorporation, as amended, and
Bylaws, as amended, copies of which have been filed with the Securities and
Exchange Commission.
COMMON STOCK
As of May 20, 1999, there were 6,630,019 shares of common stock outstanding
held of record by at least 1,000 shareholders of record. All outstanding shares
of common stock are, and all shares of common stock to be outstanding upon
completion of this offering will be, validly authorized and issued, fully paid,
and non-assessable.
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of shareholders. Holders of common
stock are entitled to receive ratably such dividends as may be declared by the
Board of Directors out of funds legally available therefor. In the event of our
liquidation, dissolution, or winding up, holders of our common stock are
entitled to share ratably in all of our assets remaining after payment of
liabilities and liquidation preferences of any outstanding shares of preferred
stock. Holders of common stock have no preemptive rights or other subscription
rights to convert their shares into any other securities.
PREFERRED STOCK
Our Board of Directors has the authority, without further action by our
shareholders, to issue 4,999,850 shares of preferred stock, in one or more
series and to fix the privileges and rights of each series. These privileges and
rights may be greater than those of the common stock. We have previously
designated two series of preferred stock consisting of 300 shares designated as
Series A Convertible Preferred Stock, of which 150 shares were issued and
subsequently converted, and 150 shares designated as Series A-1 Convertible
Preferred Stock, all of which were issued and subsequently converted. Upon such
conversions, the shares of preferred stock so designated have been returned to
our treasury
56
<PAGE> 58
and remain preferred stock with no designation. Our Board of Directors, without
further shareholder approval, can issue preferred stock with voting, conversion
or other rights that could adversely affect the voting power and other rights of
the holders of common stock. This type of "blank check preferred stock" makes it
possible for us to issue preferred stock quickly with terms calculated to delay
or prevent a change in our control or make removal of our management more
difficult.
REDEEMABLE COMMON STOCK PURCHASE WARRANTS
As of the date of this prospectus, there were 1,135,000 warrants
outstanding. Each warrant entitles the holder to purchase one share of common
stock at $6.00 per share until July 30, 2002. The warrants are redeemable by us
for $.05 per warrant, upon 30 days written notice, if the closing bid price of
our common stock as reported by the principal exchange on which the common stock
is traded equals or exceeds $7.20 per share for 20 consecutive trading days and
ending 30 days prior to the notice of redemption. As of the date of this
prospectus, we could, if we desire, redeem the warrants which would result in
gross proceeds of $6,810,000 and the issuance of an additional 1,135,000 shares
of common stock. We have agreed for a period of 30 days from the date of this
prospectus not to redeem the warrants.
The warrants can only be exercised when there is a current effective
registration statement covering the shares of common stock underlying the
warrants. If we do not or are unable to maintain a current effective
registration statement, the warrant holders will be unable to exercise the
warrants and the warrants may become valueless. In addition, because the
warrants may be transferred, it is possible that the warrants may be acquired by
persons residing in states where we have not registered, or are not exempt from
registration. In such event, if the shares of common stock underlying the
warrants are not registered or qualified for sale in the state in which a
warrant holder resides, such holder might not be permitted to exercise the
warrants. Moreover, even if the warrants could be transferred, the shares of
common stock underlying the warrants may not be sold or transferred upon
exercise of the warrants. warrant holders residing in those states would have no
choice but to attempt to sell their warrants or to let them expire unexercised.
Each warrant may be exercised by surrendering the warrant certificate, with
the form of election to purchase on the reverse side of the warrant certificate
properly completed and executed, together with payment of the exercise price to
the warrant agent. The warrants may be exercised in whole or from time to time
in part. If less than all of the warrants evidenced by a warrant certificate are
exercised, a new warrant certificate will be issued for the remaining number of
warrants.
Holders of the warrants are protected against dilution of the equity
interest represented by the underlying shares of common stock upon the
occurrence of certain events, including, but not limited to, issuance of stock
dividends. If we merge, reorganize or are acquired in such a way as to terminate
the warrants, the warrants may be exercised immediately prior to such action. In
the event of our liquidation, dissolution or winding up, holders of the warrants
are not entitled to participate in the distribution of our assets.
For the life of the warrants, subject to the redemption provision, the
holders thereof are given the opportunity to profit from a rise in the market
price of our common stock. The exercise of the warrants will result in the
dilution of the then book value of the common stock held by the public investors
and would result in a dilution of their percentage ownership of our common
stock. The terms upon which we may obtain additional capital may be adversely
affected through the period that the warrants remain
57
<PAGE> 59
exercisable. The holders of these warrants may be expected to exercise them at a
time when we would, in all likelihood, be able to obtain equity capital on terms
more favorable than those provided for by the warrants.
ANTI-TAKEOVER PROVISIONS OF FLORIDA LAW
Florida has enacted legislation that may deter or frustrate takeovers of
Florida corporations. The Florida Control Share Act generally provides that
shares acquired in excess of certain specified thresholds will not possess any
voting rights unless such voting rights are approved by a majority of a
corporation's disinterested shareholders. The Florida Affiliated Transactions
Act generally requires super majority approval by disinterested shareholders of
certain specified transactions between a public corporation and holders of more
than 10% of the outstanding voting shares of the corporation (or their
affiliates). Florida law and our articles of incorporation and bylaws also
authorize us to indemnify our directors, officers, employees and agents to the
furthest extent permitted by law. In addition, our articles of incorporation and
Florida law presently limit the personal liability of corporate directors for
monetary damages, except where the directors (i) breach their fiduciary duties
and (ii) such breach constitutes or includes certain violations of criminal law,
a transaction from which the directors derived an improper personal benefit,
certain unlawful distributions or certain other reckless, wanton or willful acts
or misconduct.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is Interwest Stock
Transfer Company, 1981 East Murray Holladay Road, Suite 100, Salt Lake City,
Utah 84117.
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<PAGE> 60
UNDERWRITING
Subject to the terms and conditions contained in the underwriting
agreement, Visual Data and the selling shareholders have agreed to sell to each
of the underwriters named below, and each of the underwriters, for which
Cruttenden Roth Incorporated and H.C. Wainwright & Co., Inc. are acting as
representatives (the "Representatives"), has severally, and not jointly, agreed
to purchase the number of shares offered in this offering set forth opposite
their respective names below.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Cruttenden Roth Incorporated
H.C. Wainwright & Co., Inc.
---------
Total............................................. 2,000,000
=========
</TABLE>
A copy of the underwriting agreement has been filed as an exhibit to this
registration statement. The underwriting agreement provides that the obligation
of the underwriters to purchase the shares is subject to some conditions. The
underwriters shall be obligated to purchase all of the shares (other than those
covered by the underwriters' over-allotment option described below), if any are
purchased.
The Representatives have advised us that the underwriters propose to offer
the shares to the public at the public offering price on the cover page of this
prospectus and that they may allow some dealers who are members of the NASD, and
some foreign dealers, concessions not in excess of $ per share, of which
amount a sum not in excess of $ per share may in turn be reallowed by such
dealers to other dealers who are members of the NASD and to some foreign
dealers. After the commencement of this offering, the offering price, the
concession to selected dealers, and the reallowance to other dealers may be
changed by the Representatives.
We and the selling shareholders have agreed to indemnify the underwriters
against some liabilities, including civil liabilities under the Securities Act,
or will contribute to payments the underwriters may be required to make in this
respect thereof.
We have agreed to pay to the Representatives an expense allowance on a non-
accountable basis, equal to 2% of the gross proceeds derived from the sale of
2,000,000 shares offered in this offering, or (2,300,000 shares if the
underwriters' over-allotment option is exercised in full). We paid an advance on
this allowance in the amount of $20,000.
The following table provides information regarding the amount of the
discount to be paid to the underwriters by Visual Data and by the selling
shareholders:
<TABLE>
<CAPTION>
TOTAL WITHOUT TOTAL WITH
EXERCISE OF OVER- EXERCISE OF OVER-
DISCOUNT ALLOTMENT ALLOTMENT
PER SHARE OPTION OPTION
---------- ----------------- -----------------
<S> <C> <C> <C>
Visual Data....................... $ $ $
Selling Shareholders.............. $ $ $
</TABLE>
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<PAGE> 61
The following table sets forth the amount and nature of other forms of
compensation to be paid to the Representatives by Visual Data in connection with
the offering:
<TABLE>
<CAPTION>
TYPE OF COMPENSATION TERMS TOTAL AMOUNT
-------------------- ------------------------- -------------------------
<S> <C> <C>
Non-Accountable Expense 2% of the gross proceeds $ ($ if the
Allowance of the offering underwriters'
over-allotment option is
exercised in full)
Underwriter Warrant(1) Warrant to purchase up to Dependent upon the market
160,000 shares at an price of common stock at
exercise price per share the time of exercise
of 120% of the public
offering price
Two Year Consulting -- $200,000 payable upon
Agreement(2) consummation of this
offering
</TABLE>
- -------------------------
(1) Underwriter Warrant is issued to the Representatives.
(2) Two year consulting agreement is between Visual Data Corporation and
Cruttenden Roth Incorporated.
We have also agreed to pay some of the Representatives' expenses in
connection with this offering, including expenses in connection with qualifying
the shares offered in this offering for sale under the laws of such states as
the Representatives may designate, the placement of tombstone advertisements and
preparing bound volumes of the public offering documents. We estimate that the
total expenses of the offering, excluding the underwriting discount, will be
approximately $ .
In connection with this offering, we have agreed to sell to the
Representatives for nominal consideration, the Underwriter Warrant to purchase
up to 160,000 shares of common stock. The Underwriter Warrant is exercisable for
a period of four years commencing one year after the date of this prospectus at
an exercise price per share equal to $ (120% of the public offering
price). The Underwriter Warrant may not be sold, transferred, assigned, pledged,
or hypothecated for a period of 12 months from the date of this prospectus,
except to members of the selling group. The Underwriter Warrant grants to the
Representatives, with respect to the registration under the Securities Act of
the securities directly and indirectly issuable upon exercise of the Underwriter
Warrant, one demand registration right during the exercise period, as well as
piggyback registration rights at any time. The Underwriter Warrant contains
anti-dilution provisions providing for adjustments of the exercise price and
number of shares issuable on exercise of the Underwriters Warrant, upon the
occurrence of some events, including stock dividends, stock splits, and
recapitalizations. The holders of the Underwriter Warrant have no voting,
dividend, or other rights as a shareholder with respect to shares of common
stock underlying the Underwriter Warrant, unless the Underwriter Warrant shall
have been exercised.
In connection with this offering, we have granted the Representatives the
right, for the three-year period commencing on the closing date of this
offering, to appoint an observer to attend all meetings of our board of
directors. This designee has the right to notice of all meetings of the board of
directors and to receive reimbursement for all out-of-pocket expenses incurred
to attend these meetings. In addition, the designee will be entitled to
indemnification to the same extent as our directors.
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<PAGE> 62
We have agreed to retain the Representatives as financial consultants for a
period of two years to commence on the closing of this offering at an aggregate
fee of $200,000, payable at the closing of this offering. Under this agreement,
the Representatives shall provide advisory services related to mergers and
acquisitions activity, corporate finance and other related matters.
The Representatives have advised us that the underwriters do not intend to
confirm sales of the shares offered in this offering to any account over which
they exercise discretionary authority.
We, and each of our officers, directors, and shareholders, have agreed not
to offer, assign, issue, sell, hypothecate, or otherwise dispose of any shares
of common stock, securities of Visual Data convertible into, or exercisable or
exchangeable for, shares of common stock, or shares of common stock received
upon conversion, exercise, or exchange of these securities, to the public
without the prior written consent of Cruttenden Roth for a period of at least
nine months after the date of this prospectus.
We and each of the selling shareholders have also granted to the
underwriters an option, exercisable during the 45-day period commencing on the
date of this prospectus, to purchase at the public offering price per share,
less the underwriting discount, up to an aggregate of 300,000 shares of common
stock. To the extent this option is exercised, the underwriters will become
obligated, subject to some conditions, to purchase additional shares of common
stock. The underwriters may exercise this right of purchase only for the purpose
of covering over-allotments, if any, made in connection with the sale of shares.
Purchases of shares of common stock upon exercise of the over-allotment option
will result in the realization of additional compensation by the underwriters.
The Representatives have informed us that they do not expect discretionary
sales by the underwriters to exceed five percent of the shares offered by this
prospectus.
The underwriters have reserved for sale up to shares for our
employees, directors and certain other persons associated with us. These
reserved shares will be sold at the public offering price that appears on the
cover of this prospectus. The number of shares available for sale to the general
public in the offering will be reduced to the extent reserved shares are
purchased by such persons. The underwriters will offer to the general public, on
the same terms as other shares offered by this prospectus, any reserved shares
that are not purchased by such persons.
Rules of the Securities and Exchange Commission may limit the ability of
the underwriters to bid for or purchase shares before the distribution of the
shares is completed. However, the underwriters may engage in the following
activities in accordance with the rules:
- STABILIZING TRANSACTIONS. The underwriters may make bids or purchases
for the purpose of pegging, fixing or maintaining the price of the
shares, so long as stabilizing bids do not exceed a specified maximum.
- OVER-ALLOTMENTS AND SYNDICATE COVERAGE TRANSACTIONS. The underwriters may
create a short position in the shares by selling more shares than are set
forth on the cover page of this prospectus. If a short position is
created in connection with the offering, the Representatives may engage
in syndicate covering transactions by purchasing shares in the open
market. The Representatives may also elect to reduce any short position
by exercising all or part of the over-allotment option.
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<PAGE> 63
- PENALTY BIDS. If the Representatives purchase shares in the open market
in a stabilizing transaction or syndicate coverage transaction, they may
reclaim a selling concession from the underwriters and selling group
members who sold those shares as part of this offering.
Stabilization and syndicate covering transactions may cause the price of
the shares to be higher than it would be in the absence of such transactions.
The imposition of a penalty bid might also have an effect on the price of the
shares if it discourages resales of the shares.
Neither we nor the underwriters makes any representation or prediction as
to the effect that the transactions described above may have on the price of the
shares. These transactions may occur on the Nasdaq National Market or otherwise.
If such transactions are commenced, they may be discontinued without notice at
any time.
We and the underwriters expect that the shares will be ready for delivery
on the fourth business day following the date of this prospectus. Under
Securities and Exchange Commission regulations, secondary market trades are
required to settle in three business days following the trade date (commonly
referred to as "T-3"), unless the parties to the trade agree to a different
settlement cycle. As noted above, the shares will settle in T-3. Therefore,
purchasers who wish to trade on the date of this prospectus or during the next
three succeeding business days must specify an alternate settlement cycle at the
time of the trade to prevent a failed settlement. Purchasers of the shares who
wish to trade shares on the date of this prospectus or during the next 3
succeeding business days should consult their own advisors.
LEGAL MATTERS
The validity of the issuance of the common stock offered hereby will be
passed upon for us by Atlas, Pearlman, Trop & Borkson, P.A., Fort Lauderdale,
Florida. Certain matters will be passed upon for the underwriters by Greenberg
Traurig, New York, New York.
EXPERTS
The Consolidated Financial Statements of Visual Data Corporation as of
September 30, 1997 and 1998 and for the years then ended included in this
prospectus, have been audited by Arthur Andersen LLP, independent certified
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports. The Consolidated Financial Statements of Visual Data Corporation
for the year ended September 30, 1996 included in this prospectus, have been
audited by Goldstein Lewin & Co., independent certified public accounts, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
The Consolidated Financial Statements of EDnet, Inc. as of June 30, 1997
and 1998 and the years then ended and September 30, 1998 and the three months
ended included in this prospectus, have been audited by Burr, Pilger & Mayer,
independent certified public accountants, as indicated in their reports with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said report.
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<PAGE> 64
AVAILABLE INFORMATION
We are subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended, and, therefore, file reports, proxy
statements and other information with the United States Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information filed by us may be inspected at the public reference facilities of
the Commission located at Judiciary Plaza, 450 Fifth Street, N.W., Washington
D.C. 20549; at the New York Regional Office of the Commission, Seven World Trade
Center, Suite 1300, New York, New York 10048; and at the Chicago Regional Office
of the Commission, 500 West Madison Street, Suite 1400, Chicago, Illinois 60621.
Copies of such material can also be obtained at prescribed rates from the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, 1-800-SEC-0330. The Commission maintains a World Wide
Website on the Internet at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission.
We have filed with the Commission a Registration Statement on Form S-1
under the Securities Act of 1933, as amended, in order to register our common
stock. This prospectus does not contain all of the information set forth in the
registration statement and related exhibits, certain portions of which have been
omitted as permitted by the rules and regulations of the Commission. Statements
as to the contents of any contract or other documents contained in this
prospectus or in any document incorporated by reference herein are not
necessarily complete and, in each instance, reference is made to the copy of
such documents filed as an exhibit to the registration statement or such other
documents, which may be obtained from the Commission as indicated above upon
payment of the fees prescribed by the Commission. Each such statement is
qualified in its entirety by such reference.
63
<PAGE> 65
INDEX TO FINANCIAL STATEMENTS
THE REGISTRANT -- VISUAL DATA CORPORATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
Introduction to Unaudited Pro Forma Financial Information... F-2
Unaudited Pro Forma Consolidated Statement of Operations for
the year ended September 30, 1998......................... F-3
Notes to Unaudited Pro Forma Consolidated Statement of
Operations................................................ F-4
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants........ F-5
Report of Independent Certified Public Accountants........ F-6
Consolidated Balance Sheets as of September 30, 1997 and
1998................................................... F-7
Consolidated Statements of Operations for the years ended
September 30, 1996, 1997 and 1998...................... F-9
Consolidated Statements of Stockholders' Equity for the
years ended September 30, 1996, 1997 and 1998.......... F-10
Consolidated Statements of Cash Flows for the years ended
September 30, 1996, 1997 and 1998...................... F-11
Notes to Consolidated Financial Statements................ F-13
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheet at March 31, 1999
(unaudited)............................................ F-26
Condensed Consolidated Statements of Operations for the
six months ended March 31, 1998 and 1999 (unaudited)... F-28
Condensed Consolidated Statements of Cash Flows for the
six months ended March 31, 1998 and 1999 (unaudited)... F-29
Notes to Unaudited Condensed Consolidated Financial
Statements............................................. F-30
BUSINESS ACQUIRED -- EDNET, INC.
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants........ F-33
Consolidated Balance Sheets at September 30, 1998, June
30, 1998 and 1997...................................... F-34
Consolidated Statements of Operations for the three months
ended September 30, 1998 and the years ended June 30,
1998 and 1997.......................................... F-36
Consolidated Statements of Stockholders' Equity for the
three months ended September 30, 1998 and the years
ended June 30, 1998 and 1997........................... F-37
Consolidated Statements of Cash Flows for the three months
ended September 30, 1998 and the years ended June 30,
1998 and 1997.......................................... F-38
Notes to Consolidated Financial Statements................ F-40
</TABLE>
F-1
<PAGE> 66
VISUAL DATA CORPORATION
INTRODUCTION TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
The following presents the unaudited pro forma condensed consolidated
statement of operations of the Company for the year ended September 30, 1998.
The unaudited pro forma condensed consolidated statement of operations gives
effect to the acquisition of EDnet, Inc. by Visual Data Corporation as if it had
occurred on October 1, 1997. The pro forma consolidated balance sheet is not
presented as the EDnet acquisition was completed on June 20, 1998 and,
accordingly, is included in Visual Data Corporation's September 30, 1998
consolidated balance sheet.
The unaudited pro forma condensed consolidated statement of operations is
based upon available information and certain assumptions considered reasonable
by management. This statement is not necessarily indicative of the actual
results of operations that might have occurred, nor are they necessarily
indicative of expected results in the future.
The unaudited pro forma condensed consolidated financial statements should
be read in conjunction with the Company's Consolidated Financial Statements and
management's discussion thereof contained elsewhere in this registration
statement.
F-2
<PAGE> 67
VISUAL DATA CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
PRO FORMA AS
VISUAL DATA ACQUISITION ADJUSTED FOR
CORPORATION EDNET(A) ADJUSTMENTS ACQUISITION
----------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Revenue........................ $ 1,880,842 $2,900,910 4,781,752
Cost of Sales.................. 803,784 1,925,688 2,729,472
Sales, marketing &
administrative............... 4,539,929 1,195,938 55,335(b) 5,791,202
----------- ---------- --------- -----------
Total operating
costs............. 5,343,713 3,121,626 55,335 8,520,674
----------- ---------- --------- -----------
Income (loss) from operations
before other income
(expense) and provision
for income taxes and
extraordinary item........ (3,462,871) 392,427 (55,335) (3,738,922)
----------- ---------- --------- -----------
Other income (expenses)
Interest income.............. 68,836 4,166 -- 73,002
Rental income................ 80,671 -- -- 80,671
Interest expense............. (96,362) (55,704) -- (152,066)
Gain on sale of equipment.... -- 3,160 -- 3,160
Gain on sale of investment... -- 422,225 -- 422,225
Forgiveness of debt.......... -- 200,000 -- 200,000
Minority interest............ (24,869) -- (171,858)(c) (196,727)
----------- ---------- --------- -----------
Total other income
(expense)......... 28,276 573,847 (472,298) 430,265
----------- ---------- --------- -----------
Income (loss) before
provision for income taxes
and extraordinary item.... (3,434,595) 966,274 (527,633) 3,308,657
Provision for income taxes..... -- 2,400 -- 2,400
----------- ---------- --------- -----------
Income (loss) before
extraordinary item........ $(3,434,595) $ 963,874 $(527,633) $(3,311,057)
=========== ========== ========= ===========
Weighted average of shares
outstanding.................. 3,253,731 3,314,148
=========== ===========
Loss per Share -- Basic and
Diluted...................... $ (1.06) $ (1.00)
=========== ===========
</TABLE>
F-3
<PAGE> 68
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PROFORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(a) For the period October 1, 1997 through June 19, 1998
(b) Represents the excess of purchase price over net assets acquired amortized
over a fifteen (15) year life.
(c) Represents the minority interest share (49%) of EDnet, Inc. net income for
the period October 1, 1997 through June 19, 1998
F-4
<PAGE> 69
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Visual Data Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Visual Data
Corporation and Subsidiaries as of September 30, 1997 and 1998, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Visual Data Corporation and
Subsidiaries as of September 30, 1997 and 1998, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
Miami, Florida,
December 4, 1998.
F-5
<PAGE> 70
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Visual Data Corporation and Subsidiary:
We have audited the accompanying consolidated statements of operations,
stockholders' equity (deficit) and cash flows of Visual Data Corporation and
Subsidiary for the year ended September 30, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on the financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements of Visual Data
Corporation and Subsidiary present fairly, in all material respects, the results
of their operations and their cash flows for the year ended September 30, 1996
in conformity with generally accepted accounting principles.
Goldstein Lewin & Co.
Boca Raton, Florida,
December 4, 1996.
F-6
<PAGE> 71
VISUAL DATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1997 1998
---------- ----------
<S> <C> <C>
Assets
CURRENT ASSETS:
Cash and cash equivalents........................... $2,554,180 $ 590,848
Restricted cash..................................... -- 20,000
Accounts receivable, net of allowance for doubtful
accounts of $20,898 and $57,941 at September 30,
1997 and 1998, respectively
Prepaid expenses.................................... 62,695 621,546
Other current assets................................ 60,677 347,888
34,337 168,109
---------- ----------
Total current assets........................ 2,711,889 1,748,391
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, NET.................... 1,861,191 3,535,205
---------- ----------
EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED..... -- 1,097,243
---------- ----------
OTHER................................................. 14,812 13,249
---------- ----------
Total assets................................ $4,587,892 $6,394,088
========== ==========
Liabilities and Stockholders' Equity
CURRENT LIABILITIES:
Accounts payable.................................... $ 142,950 $ 477,764
Accrued expenses.................................... 73,035 353,821
Deferred revenue.................................... 94,295 131,576
Current portion of obligations under capital
leases........................................... 21,856 17,147
Mortgage note payable............................... 33,765 967,023
Notes payable....................................... -- 240,500
---------- ----------
Total current liabilities................... 365,901 2,187,831
---------- ----------
OBLIGATIONS UNDER CAPITAL LEASES, NET OF CURRENT
PORTION............................................. 8,652 15,058
MORTGAGE NOTE PAYABLE, net of current portion......... 966,235 --
---------- ----------
974,887 15,058
---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 7 and 13)
MINORITY INTEREST..................................... -- 306,506
---------- ----------
</TABLE>
F-7
<PAGE> 72
VISUAL DATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1997 1998
---------- ----------
<S> <C> <C>
STOCKHOLDERS' EQUITY:
Preferred Stock, par value $.0001 per share;
authorized 5,000,000 shares:
Series A Convertible Preferred Stock,
designated 300 shares, issued and
outstanding 0 and 150 at September 30, 1997
and 1998, respectively...................... -- --
Series A-1 Convertible Preferred Stock,
designated 150 shares, issued and
outstanding 0 and 150 at September 30, 1997
and 1998, respectively...................... -- --
Common Stock, par value $.0001 per share; authorized
20,000,000 shares; 3,037,971 and 3,732,100 issued
and outstanding at September 30, 1997 and 1998,
respectively..................................... 304 373
Additional paid in capital.......................... 9,401,789 13,494,945
Accumulated deficit................................. (6,154,989) (9,610,625)
---------- ----------
Total stockholders' equity.................. 3,247,104 3,884,693
---------- ----------
Total liabilities and stockholders'
equity................................... $4,587,892 $6,394,088
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE> 73
VISUAL DATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
REVENUE............................... $ 111,719 $ 193,038 $ 1,880,842
OPERATING COSTS:
Cost of sales....................... -- -- 803,784
Selling, general and
administrative................... 527,692 1,441,173 2,011,815
Compensation and related costs...... 985,441 789,165 1,341,737
Production.......................... 121,239 83,357 22,354
Occupancy........................... 43,875 82,373 157,780
Professional and consulting fees.... 298,815 352,853 1,006,243
----------- ----------- -----------
Total operating costs....... 1,977,062 2,748,921 5,343,713
----------- ----------- -----------
Loss from operations................ (1,865,343) (2,555,883) (3,462,871)
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income..................... 753 30,403 68,836
Rental income....................... -- -- 80,671
Interest expense.................... (27,112) (1,042,227) (96,362)
Loss on write off of property, plant
and equipment.................... -- (6,255) --
Minority interest................... -- -- (24,869)
----------- ----------- -----------
Total other income
(expense)................ (26,359) (1,018,079) 28,276
----------- ----------- -----------
Net loss............................ $(1,891,702) $(3,573,962) $(3,434,595)
=========== =========== ===========
Weighted average shares of common
stock outstanding................ 1,405,228 2,509,249 3,253,731
=========== =========== ===========
Loss per share -- basic and
diluted.......................... $ (1.35) $ (1.42) $ (1.06)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE> 74
VISUAL DATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
SERIES A SERIES A-1 SERIES B
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL
----------------- --------------- ----------------- ------------------ PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
-------- ------ ------ ------ -------- ------ --------- ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1995....... 185,716 $ 19 -- $-- -- $ -- 873,306 $ 87 $ 986,815
Issuance of shares for services
and incentives.................. -- -- -- -- -- -- 224,219 23 724,240
Issuance of shares for cash....... -- -- -- -- 113,750 11 -- -- 454,989
Issuance of shares for cash....... -- -- -- -- -- -- 15,625 2 49,998
Discount on convertible notes..... -- -- -- -- -- -- 53,125 5 169,995
Compensation expense on stock
option grants................... -- -- -- -- -- -- -- -- 384,244
Net loss.......................... -- -- -- -- -- -- -- -- --
-------- ---- --- --- -------- ---- --------- ---- -----------
BALANCE, SEPTEMBER 30, 1996....... 185,716 19 -- -- 113,750 11 1,166,275 117 2,770,281
Issuance of shares for services
and incentives.................. -- -- -- -- -- -- 22,500 2 114,500
Issuance of shares for cash....... -- -- -- -- -- -- 1,000,000 100 4,759,559
Conversion of preferred stock..... (185,716) (19) -- -- (113,750) (11) 374,329 37 (7)
Conversion of convertible notes... -- -- -- -- -- -- 212,500 21 584,354
Exercise of warrants.............. -- -- -- -- -- -- 59,688 6 86,682
Exercise of options............... -- -- -- -- -- -- 2,679 1 3,749
Issuance of shares for interest
expense......................... -- -- -- -- -- -- 200,000 20 969,521
Issuance of publicly traded
warrants........................ -- -- -- -- -- -- -- -- 113,150
Net loss.......................... -- -- -- -- -- -- -- -- --
-------- ---- --- --- -------- ---- --------- ---- -----------
BALANCE, SEPTEMBER 30, 1997....... -- -- -- -- -- -- 3,037,971 304 9,401,789
Issuance of shares for services
and incentives.................. -- -- -- -- -- -- 184,785 18 509,017
Issuance of warrants and options
for services and incentives..... -- -- -- -- -- -- -- -- 442,619
Issuance of shares for assets..... -- -- -- -- -- -- 240,000 24 911,226
Issuance of warrants for assets... -- -- -- -- -- -- -- -- 261,680
Issuance of shares for cash....... 150 -- 150 -- -- -- 266,665 27 1,964,864
Exercise of warrants.............. -- -- -- -- -- -- 2,679 -- 3,750
Preferred dividends payable....... -- -- -- -- -- -- -- -- --
Net loss.......................... -- -- -- -- -- -- -- -- --
-------- ---- --- --- -------- ---- --------- ---- -----------
BALANCE, SEPTEMBER 30, 1998....... 150 $ -- 150 $-- -- $ -- 3,732,100 $373 $13,494,945
======== ==== === === ======== ==== ========= ==== ===========
<CAPTION>
ACCUMULATED
DEFICIT
-----------
<S> <C>
BALANCE, SEPTEMBER 30, 1995....... $ (689,325)
Issuance of shares for services
and incentives.................. --
Issuance of shares for cash....... --
Issuance of shares for cash....... --
Discount on convertible notes..... --
Compensation expense on stock
option grants................... --
Net loss.......................... (1,891,702)
-----------
BALANCE, SEPTEMBER 30, 1996....... (2,581,027)
Issuance of shares for services
and incentives.................. --
Issuance of shares for cash....... --
Conversion of preferred stock..... --
Conversion of convertible notes... --
Exercise of warrants.............. --
Exercise of options............... --
Issuance of shares for interest
expense......................... --
Issuance of publicly traded
warrants........................ --
Net loss.......................... (3,573,962)
-----------
BALANCE, SEPTEMBER 30, 1997....... (6,154,989)
Issuance of shares for services
and incentives.................. --
Issuance of warrants and options
for services and incentives..... --
Issuance of shares for assets..... --
Issuance of warrants for assets... --
Issuance of shares for cash....... --
Exercise of warrants.............. --
Preferred dividends payable....... (21,041)
Net loss.......................... (3,434,595)
-----------
BALANCE, SEPTEMBER 30, 1998....... $(9,610,625)
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE> 75
VISUAL DATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................ $(1,891,702) $(3,573,962) $(3,434,595)
Adjustments to reconcile net loss to
net cash used in operating
activities --
Depreciation and amortization.... 84,809 64,378 309,458
Write-off of fixed assets........ -- 6,255 --
Provision for doubtful
accounts....................... -- 53,166 103,545
Minority interest................ -- -- 24,869
Write-off of deferred offering
costs.......................... -- 650,000 --
Issuance of equity securities
for:
Interest expense............... -- 969,531 --
Services and incentives........ 458,507 114,500 951,654
Changes in assets and
liabilities:
Accounts receivable............ (42,168) (73,693) (313,085)
Prepaid expenses............... (23,308) (28,532) (228,388)
Other current assets........... -- (34,337) 24,368
Stockholder receivables........ (50,000) 50,000 --
Financing costs................ -- 102,000 --
Accounts payable and accrued
expenses.................... 171,673 (13,058) 37,597
Deferred revenue............... 63,500 23,795 (27,964)
Deferred rent.................. (3,038) (1,772) --
----------- ----------- -----------
Net cash used in operating
activities............... (1,231,727) (1,691,729) (2,552,541)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of land and building....... -- (1,542,949) --
Acquisition of property and
equipment........................ (82,053) (116,288) (383,276)
Acquisitions, net of cash
acquired......................... -- -- (747,627)
Increase in restricted cash......... -- -- (20,000)
(Increase) decrease in deposits..... (2,632) 7,062 15,211
----------- ----------- -----------
Net cash used in investing
activities............... (84,685) (1,652,175) (1,135,692)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from mortgage note
payable.......................... -- 1,000,000 --
Payments on mortgage note payable
and note payable................. -- -- (73,477)
</TABLE>
F-11
<PAGE> 76
VISUAL DATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, -- (CONTINUED)
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Payments on capital leases.......... (37,889) (77,927) (33,013)
Issuance of convertible notes....... 850,000 -- --
Proceeds from note payable.......... -- -- 281,000
Conversion of convertible notes..... -- (95,622) --
Finance costs....................... (153,000) -- --
Issuance of preferred stock......... 455,000 -- 1,376,191
Issuance of common stock............ 61,000 4,759,671 170,450
Proceeds from sale of warrants...... -- 113,150 --
Proceeds from exercise of warrants
and options...................... -- 90,435 3,750
Proceeds from stockholder loans..... 100,000 1,000,000 --
Payments on stockholder loans....... (50,000) (1,050,000) --
----------- ----------- -----------
Net cash provided by
financing activities..... 1,225,111 5,739,707 1,724,901
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS.................... (91,301) 2,395,803 (1,963,332)
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR............................. 249,678 158,377 2,554,180
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF
YEAR................................ $ 158,377 $ 2,554,180 $ 590,848
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash payments for interest.......... $ 24,635 $ 72,696 $ 93,687
=========== =========== ===========
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Issuances of common shares for:
Subscription receivable............. $ 50,000 $ -- $ --
=========== =========== ===========
Services and incentives............. $ 1,108,507 $ 114,500 $ 509,035
=========== =========== ===========
Issuance of warrants and options
for:
Services and incentives............. $ -- $ -- $ 442,619
=========== =========== ===========
Property and equipment financed by
capital leases................... $ 30,068 $ 45,813 $ 13,952
=========== =========== ===========
Accrued dividends payable........... $ -- $ -- $ 21,042
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE> 77
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Visual Data Corporation ("VDC") was incorporated on May 17, 1993, and in
September 1996 commenced its principal operations.
VDC and its wholly owned subsidiaries are in the business of producing,
marketing and distributing video information libraries intended for use by the
general public through various distribution channels, primarily in the United
States. These distribution channels include the Internet and Interactive
television ("ITV"). The information libraries contain short concise vignettes on
various topics such as travel, medicine, nursing homes, timeshare properties and
business news. Through September 30, 1997, the Company had been engaged
primarily in the production and sale of video vignettes to hotels and their
distribution via laser disc players installed in travel agencies throughout the
United States. During the year ended September 30, 1998, the primary
distribution channel for all of VDC's libraries was the Internet.
EDnet, Inc.("EDnet") a 51% owned subsidiary of VDC, develops and markets
integrated systems for the delivery, storage, and management of professional
quality digital communications for media-based applications, including audio and
video production for the U.S. entertainment industry. EDnet, through strategic
alliances with long-distance carriers, regional telephone companies, satellite
operators, and independent fiber optic telecommunications providers, has
established a worldwide network that enables the exchange of high quality audio,
video, multimedia, and data communications. It provides engineering services and
application-specific technical advice, audio, video, and networking hardware and
software as part of its business.
On August 4, 1997, VDC closed an initial public offering of 1,000,000
shares of its common stock at $6.00 per share and 1,000,000 redeemable warrants
at $0.10 per warrant. In addition, VDC granted the underwriters the option to
purchase up to 150,000 additional warrants to cover over-allotments. During
September 1997, the underwriters exercised the over-allotment option and
purchased an additional 150,000 warrants.
BASIS OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
VDC and its subsidiaries, HotelView Corporation ("HVC"), CareView Corporation
("CVC"), Video News Wire Corp., ResortView Corporation ("RVC") (f/k/a
CondoView), and EDnet, Inc., a 51% owned subsidiary. EDnet was acquired on June
20, 1998. EDnet's results have been included in the accompanying consolidated
financial statements from the date of acquisition. All significant intercompany
accounts and transactions have been eliminated in consolidation.
REVENUE RECOGNITION
Membership fees charged to clients of HotelView, AttractionView, CareView,
and ResortView are recognized ratably over the life of their contracts. Initial
sign up fees and direct production costs are amortized over the estimated life
of the relationship. Deferred revenues for these divisions represent
unrecognized sign up fees. Revenues from Video
F-13
<PAGE> 78
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
News Wire are recognized when the product is delivered. For the year ended
September 30, 1997, the membership revenues were exclusively from HotelView.
A significant component of EDnet's revenue relates to the sale of equipment
which is recognized when the equipment is installed. Installation fees are
recognized when the installation has been completed. Usage fees are recognized
over the period the equipment is used based on the relative usage level.
Deferred revenues represent billings in excess of revenue recognized.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Property and equipment
under capital leases is stated at the lower of the present value of the minimum
lease payments at the beginning of the lease term or the fair value at the
inception of the lease. Depreciation is computed using the straight-line method
over the estimated useful lives of the related assets. Amortization expense on
assets acquired under capital leases is included with depreciation expense. The
costs of leasehold improvements are amortized over the lesser of the lease term
or the life of the improvement.
DEFERRED OFFERING COSTS
Prior to September 30, 1996 the Company had incurred $650,000 of costs
related to a proposed public offering of the Company's common stock. In
accordance with generally accepted accounting principles, as these costs did not
benefit the ultimately consummated IPO, they were charged to expense during the
fiscal year ended September 30, 1997. These costs are included as a component of
selling, general and administrative expense in the accompanying consolidated
statement of operations for the year ended September 30, 1997.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
INCOME TAXES
In accordance with Financial Accounting Standards Board Statement on
Financial Accounting Standards ("SFAS") Statement No. 109 deferred tax assets or
liabilities are computed based upon the difference between the financial
statement and income tax basis of assets and liabilities using the enacted
marginal tax rate applicable when the related asset or liability is expected to
be realized or settled. Deferred income tax expense or benefit is based on the
changes in the asset or liability from period to period. If available evidence
suggests that it is more likely than not that some portion or all of the
deferred tax assets will not be realized, a valuation allowance is required to
reduce the deferred tax assets to the amount that is more likely than not to be
realized. Because of the uncertainty regarding the realizability of the
Company's net operating loss carryforwards, the Company
F-14
<PAGE> 79
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
has provided a 100% valuation allowance on its deferred tax assets at September
30, 1997 and 1998. Future changes in such valuation allowance would be included
in the provision for deferred income taxes in the period of change.
EARNINGS PER SHARE
For the years ended September 30, 1996, 1997 and 1998, net loss per share
is based on the weighted average number of shares of common stock outstanding.
Since the effect of common stock equivalents was anti-dilutive, all such
equivalents were excluded from the calculation of net loss per share.
Pursuant to Securities and Exchange Commission Staff Accounting Bulletins,
common and common equivalent shares issued at prices below the initial public
offering price during the twelve month period prior to a public offering are
required to be included in the calculation of earnings or loss per share as if
they were outstanding for all periods presented prior to the offering (using the
treasury stock method and the public offering price) even if antidilutive.
Accordingly, the weighted average number of shares of common stock outstanding
for the year ended September 30, 1997 have been adjusted to reflect the impact
of such additional common and common equivalent shares issued at prices below
the initial public offering price.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, restricted cash,
accounts receivable, accounts payable, accrued expenses, mortgage notes payable,
notes payable and obligations under capital leases approximate fair value due to
the short maturity of the instruments and the provision for what management
believes to be adequate reserves for potential losses.
CONCENTRATION OF CREDIT RISK
The Company at times has cash in banks in excess of FDIC insurance limits
and places its temporary cash investments with high credit quality financial
institutions. The Company performs ongoing credit evaluations of its customers'
financial condition and does not require collateral from them. Reserves for
credit losses are maintained at levels considered adequate by management.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current
year presentation.
F-15
<PAGE> 80
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2: PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, including equipment acquired under capital
leases, consists of:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------ LIVES
1997 1998 (YEARS)
---------- ---------- -------
<S> <C> <C> <C>
Building.................................... $1,542,948 $1,549,782 39
Furniture and fixtures...................... 26,029 270,235 7
Equipment................................... 170,525 194,934 5
Editing and production equipment............ 169,305 527,973 3-10
Computer equipment.......................... 55,918 198,598 3-5
Software.................................... -- 683,980 3-5
Network & related equipment................. -- 918,450 5
Internet hardware & software................ -- 328,413 3-5
Leasehold improvements...................... -- 26,183 7
---------- ----------
1,964,725 4,698,548
Less: Accumulated depreciation and
amortization.............................. (103,534) (1,163,343)
---------- ----------
$1,861,191 $3,535,205
========== ==========
</TABLE>
NOTE 3: PURCHASE OF EDNET, INC.
On July 27, 1998, the Company completed the acquisition of 51% of the
common stock of EDnet, Inc., effective June 20, 1998. The consideration for the
shares consisted of (i) cash in the amount of $698,000; (ii) five year warrants
to purchase 50,000 shares of the Company's common stock at $3.00 per share,
valued at $2.74 per warrant; (iii) 75,000 shares of the Company's common stock
valued at $3.75 per share; and (iv) a secured promissory note in the aggregate
principal amount of approximately $284,000. The note is secured by a mortgage on
VDC's principal executive offices.
In addition, the Company received an option to acquire at an exercise price
of $.10 per share, the number of shares actually purchased upon exercise of each
option, warrant and other convertible security of EDnet outstanding at the date
of closing. Based upon the number of convertible securities outstanding, the
Company has the right to purchase up to an aggregate of 6,542,722 shares of
EDnet's common stock. The Company's right to exercise the options shall accrue
on the date of exercise of the corresponding outstanding option and shall expire
on the first anniversary of the exercise date of each such outstanding option.
The acquisition of EDnet has been accounted for under the purchase method
of accounting and the results of operations of EDnet are included in the
historical financial statements from the date of acquisition. The Company's
unaudited pro forma consolidated results of operations assuming the above
acquisition had been consummated as of the beginning of the earliest period
presented are as follows for the years indicated (in 000's,
F-16
<PAGE> 81
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
except per share amounts). The amounts used for EDnet are for the years ended
June 30, 1997 and 1998.
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Revenue............................................. $ 4,000,408 $ 4,544,581
Loss from operations................................ $(5,882,547) $(4,327,390)
Net loss............................................ $(5,825,210) $(3,251,564)
Net loss per common share --
Basic and diluted................................. $ (2.25) $ (.98)
</TABLE>
This transaction was accounted for as a purchase, and accordingly, the
purchase price was allocated to the net assets acquired based on their estimated
fair market value. As a result of this allocation, $1,115,688 of the purchase
price was allocated to excess of purchase price over net assets acquired.
<TABLE>
<S> <C>
Aggregate purchase price.................................... $1,400,000
Net assets acquired:
Working capital (deficit)................................. (55,933)
Property and equipment.................................... 394,806
Other..................................................... 227,076
Minority interest......................................... (281,637)
----------
284,312
----------
Excess of purchase price over net assets acquired........... $1,115,688
==========
</TABLE>
NOTE 4: CAPITAL LEASE OBLIGATIONS
The Company acquired certain equipment under leases which are accounted for
as capital leases. The following is a schedule, by year, of the future minimum
lease payments under the capital leases together with the present value of the
net minimum lease payments.
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1997 1998
------- --------
<S> <C> <C>
Year ending September 30,
1998.................................................... $27,403 $ --
1999.................................................... 9,134 20,184
2000.................................................... -- 13,865
2001.................................................... -- 4,237
------- --------
Total minimum lease payments.............................. 36,537 38,286
Less: Amount representing interest........................ (6,029) (6,081)
------- --------
Present value of minimum lease payments................... 30,508 32,205
Current portion......................................... (21,856) (17,147)
------- --------
Long-term portion....................................... $ 8,652 $ 15,058
======= ========
</TABLE>
F-17
<PAGE> 82
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5: NOTES PAYABLE AND OTHER DEBT
NOTES PAYABLE
Notes payable consist of the following as of September 30:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Note payable -- related party to a director of VDC, with
original principal of $200,000 at 12% interest. The
principal balance and accrued interest is due on August
3, 1999. Accrued interest payable as of September 30,
1998 is $3,814......................................... $ -- $200,000
Notes payable -- related party to an officer and
employees, interest at 6% per annum, uncollateralized.
Accrued interest payable as of September 30, 1998 is
$15,127. The notes are subordinated to the $250,000
credit line discussed below for a period of six months.
Notes are due on demand thereafter..................... -- 40,500
-------- --------
$ -- $240,500
======== ========
</TABLE>
MORTGAGE NOTE PAYABLE
Mortgage note payable consists of the following as of September 30:
<TABLE>
<CAPTION>
1997 1998
---------- ---------
<S> <C> <C>
Note payable to an unrelated financial institution,
interest payable at 8.75% on a 15 year amortization,
principal balance and any accrued interest due March
31, 1999, secured by a mortgage on VDC's facility in
Pompano Beach Florida................................ $1,000,000 $ 967,023
Less: Current portion............................. (33,765) (967,023)
---------- ---------
$ 966,235 $ --
========== =========
</TABLE>
During the fiscal year ended September 30, 1997, VDC, in exchange for
$1,000,000 in cash, issued units ("1997 Units") consisting of notes payable in
the aggregate amount of $1,000,000 ("1997 Notes") and common stock aggregating
200,000 shares. The 1997 Notes were unsecured, with an interest rate of 10% and
were due the earlier of one month after the effective date of the Company's IPO
or one year from the date of the note. The 1997 Notes were repaid during August
1997. Non-cash interest expense in the amount of $969,531 was recorded during
the fiscal year ended September 30, 1997.
NOTE 6: CONVERTIBLE NOTES
In July and August 1996, the Company issued units ("1996 Units") consisting
of convertible notes ("1996 Notes") aggregating $850,000 and common stock
aggregating 53,125 shares. Each 1996 Unit consisted of a $50,000 note and 3,125
shares of common stock. The 1996 Notes were unsecured and bore interest at 10%.
Each 1996 Note was convertible into 12,500 additional shares of common stock at
$4.00 per share, subject to the conversion provisions of the 1996 Notes and each
1996 Note matured on January 31,
F-18
<PAGE> 83
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
1997 unless a registration statement was filed. If such statement had been
filed, the maturity date became the earlier of two weeks after the effective
date or July 31, 1997. The convertible 1996 Notes were recorded at a discount of
$170,000, reflecting an average per share price of $3.20 for all shares issued
or to be issued upon conversion.
All convertible notes were converted into common stock in October, 1996.
Accordingly, such notes are classified as long-term debt on the balance sheet as
of September 30, 1996.
NOTE 7: COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
As of September 30, 1998, the Company leases office space and certain
equipment under various noncancelable operating leases. The leases begin to
expire in March 2000. Future minimum lease payments required under the
noncancelable leases are as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
---------
<S> <C>
Year ending September 30:
1999..................................... $188,052
2000..................................... 149,572
2001..................................... 111,092
2002..................................... 111,092
2003..................................... 86,203
--------
Total minimum lease payments............... $646,011
========
</TABLE>
Rent expense for the years ended September 30, 1996, 1997 and 1998
aggregated $42,071, $72,161 and $52,146, respectively.
EMPLOYMENT CONTRACTS
The Company's President, Vice President and COO have entered into
employment agreements with the Company. The three year contracts provide for the
granting of 375,000 options to the President and the Vice President at an
exercise price of $2.50 to vest at the rate of 125,000 on each anniversary of
the effective date of the amended contract. The COO is to vest in 150,000
options at the first anniversary of the effective date and 125,000 each
anniversary thereafter for a total of 400,000 options. The contracts further
provide for an annual bonus in cash or stock equal to 2% of the Company's
increase in earnings as defined therein.
In addition to the above, EDnet has contracts with several of its key
employees that expire at dates through December 31, 2000. At September 30, 1998,
the commitment under all of the EDnet contracts was approximately $980,000.
UNDERWRITER WARRANTS
In connection with the IPO, the Company granted to the underwriters rights
to purchase from VDC up to 100,000 shares of common stock and 100,000 warrants.
They
F-19
<PAGE> 84
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
are initially exercisable at a price of 140% of the initial public offering
price per share of common stock (or the exercise price per share for the
warrants) for a period of four years commencing one year from the effective date
of the registration statement and are restricted from sale, transfer and
assignment for a specified period. Such warrants continue to be outstanding at
September 30, 1998.
NOTE 8: REVENUE
In March 1998, the Company entered into an agreement with Digital Criteria
Technologies whereby it obtained an exclusive license to market VoiceSelect, a
multimedia database and search technology for professional voice talent, via the
Internet. Under the terms of the agreement, VDC will act as the Internet host
for VoiceSelect and will market the product through VDC's TalentView division to
advertising agencies, talent agencies and voice talent. Upon consummation of the
contract the Company received a non-refundable signing fee of $250,000 which is
included in Revenue in the accompanying statement of operations for the year
ended September 30, 1998. The Company is also entitled to a percentage of the
revenues generated by VDC's development and marketing efforts. VDC was also
given right of first refusal to purchase the product.
Revenue by type for the years ended September 30, 1996, 1997 and 1998 are
as follows:
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- ----------
<S> <C> <C> <C>
Membership contracts........................ $111,719 $193,038 $ 230,913
Signing fee................................. -- -- 250,000
Sales:
Equipment sales........................... -- -- 376,581
Installation fees......................... -- -- 171,036
Usage fees................................ -- -- 388,681
Web design and consulting................. -- -- 441,081
Other..................................... -- -- 22,550
-------- -------- ----------
$111,719 $193,038 $1,880,842
======== ======== ==========
</TABLE>
NOTE 9: CAPITAL STOCK
PREFERRED STOCK
Series A convertible preferred stock issued in March 1995 was convertible
at the holder's option into two shares of common stock. Accordingly, at
September 30, 1996 232,145 shares of common stock was reserved for this
contingency. Each share of the Series A preferred stock had two votes per share
and votes with the common stock. Holders of Series A preferred stock were
entitled to a liquidation distribution of $3.50 per share before any
distributions were made on any other capital stock of VDC. The shares had no
dividend rights. These shares were converted into 185,716 shares of common stock
during the fiscal year ended September 30, 1997.
Series B convertible preferred stock issued in November 1995 was
convertible at the holder's option into two shares of common stock. Each share
of the Series B preferred stock had two votes per share and votes with the
common stock. Holders of Series B
F-20
<PAGE> 85
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
preferred stock were entitled to a liquidation distribution of $4.00 per share
after the Series A shareholders had been paid their liquidation distribution and
before any other distributions were made on any other capital stock of VDC. The
shares had no dividend rights. These shares were converted into 113,750 shares
of common stock during the fiscal year ended September 30, 1997.
On May 8, 1998, the Company completed the sale of 150 shares of its Series
A Convertible Preferred Stock ("Preferred A") to two institutional investors
resulting in gross proceeds of $750,000. The Preferred A bears interest at five
percent per annum, payable upon conversion of the preferred shares to common
shares and is payable in common shares at the Company's option. Dividends
payable of $15,833 on the Preferred A is included in accrued expenses at
September 30, 1998. The Preferred A is convertible into VDC's Common Stock at a
price equal to the lesser of (i) $3.0428, subject to adjustment, or (ii) a
floating conversion price determined by multiplying a Conversion Percentage in
effect as of such date by the market price for VDC's Common Stock. The
Conversion Percentage is 87.76% for the first one hundred eighty (180) days from
the closing and 82.76% for any day thereafter, subject to adjustment. The market
price for VDC's Common Stock shall be the average of the three lowest closing
bid prices for such Common Stock during the twenty (20) consecutive trading days
immediately preceding such date.
Following the initial closing date, the Buyers shall be obligated to
purchase and VDC will be obligated to sell an additional 150 shares of Preferred
Stock under the same terms and conditions as the initial shares so issued,
provided a series of conditions have been met.
On August 11, 1998 VDC completed the sale of 150 shares of VDC's Series A-1
Convertible Preferred Stock (the "Preferred A-1") to an institutional investor
resulting in gross proceeds of $750,000. The Preferred A-1 bears interest at
five percent per annum, payable upon conversion of the Preferred Stock, and is
payable in kind at VDC's option. Dividends payable of $5,208 related to the
Preferred A-1 is included in accrued expenses at September 30, 1998. The
Preferred A-1 is convertible into VDC's Common Stock at a price equal to the
lesser of (i) $3.0428 per share, or (ii) a floating conversion price determined
by multiplying a Conversion Percentage in effect as of such date by the Market
Price for VDC's Common Stock. The Conversion Percentage shall be 87.76% for the
first 180 days from the issuance date of the Preferred A-1 and 82.76% for any
day thereafter. The Market Price for VDC's Common Stock shall be the average of
the three lowest closing bid prices for such Common Stock during the twenty (20)
consecutive trading days immediately preceding such date. In no event shall any
holder of Preferred A-1 be entitled to convert shares in excess of the number of
shares of Preferred A-1 which, upon conversion, would cause the aggregate number
of shares of Common Stock beneficially owned by such holder and its affiliates
to exceed 4.99% of the outstanding shares of Common Stock following such
conversion.
COMMON STOCK
Common stock has one vote per share for the election of directors and all
other matters submitted to a vote of stockholders. Shares of common stock do not
have cumulative voting, preemptive, redemption or conversion rights.
F-21
<PAGE> 86
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
VDC had reserved 1,033,645 and 1,760,451 shares of common stock for
issuance relating to unexpired options and warrants at September 30, 1997 and
1998, respectively.
REVERSE STOCK SPLIT
The financial statements have been retroactively adjusted to reflect the
effect of a 1 to 1.6 reverse stock split, which occurred in July 1997.
NOTE 10: INCOME TAXES
The deficit accumulated during the development stage (inception through
August 31, 1996) of approximately $2,025,000 is capitalized for income tax
purposes as accumulated start-up costs, and is being amortized over a 60 month
period beginning September 1, 1996. VDC has a net operating loss carryforward as
of September 30, 1998 of approximately $7 million for federal income tax
purposes, inclusive of the amortization of the start-up costs, which expires
September 30, 2001. VDC has recorded a valuation allowance of approximately
$2,800,000 with respect to any future tax benefits arising from any net
operating losses and the amortization of the start-up costs due to the
uncertainty of their ultimate realization.
NOTE 11: RECENTLY ISSUED ACCOUNTING STANDARDS
In 1997, the Financial Accounting Standards Board (the "FASB") issued SFAS
No. 130, "Reporting Comprehensive Income". This Statement requires all items
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement displayed with the
same prominence as other financial statements. The adoption of SFAS No. 130 had
no impact on the Company's financial statements as net loss was the same as
comprehensive income for all periods presented.
In 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information". This Statement establishes standards for
the way public business enterprises report information about operating segments
in annual financial statements and requires those enterprises report selected
information about operating segments in interim financial reports. SFAS No. 131
also establishes standards for related disclosures about products and services,
geographic areas of operations and major customers. VDC intends to adopt this
statement for the fiscal year ending 1999. In the opinion of management,
adoption of this standard will not have a material impact on the Company's
reporting disclosures.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position No. 98-5 ("SOP 98-5"), "Reporting on the Costs of
Start-up Activities". SOP 98-5 requires all non-governmental entities to expense
costs of start-up activities, including pre-operating, pre-opening and
organization activities, as those costs are incurred. Adoption of this statement
is not expected to have a material effect on VDC's results of operations.
NOTE 12: STOCK OPTIONS GRANTED TO DIRECTORS AND EMPLOYEES
At September 30, 1998, there were vested options to purchase an aggregate
of 1,296,916 shares of common stock outstanding at exercise prices ranging from
$.00016 to
F-22
<PAGE> 87
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
$5.60 expiring between March 1999 and September 2002. In addition to the
Underwriter Warrants discussed above, at September 30, 1998, there were warrants
to purchase an aggregate of 463,535 shares of common stock outstanding at
exercise prices ranging from $2.80 to $6.60 expiring between May 1999 and June
2003.
The Company adopted Statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation," ("SFAS 123") in the fiscal year ended
1997. VDC has elected to continue using Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," in accounting for employee stock
options.
VDC has granted options to purchase 1,935,041 shares of Common Stock to
management and directors. Detail of option activity is as follows:
<TABLE>
<CAPTION>
1996 1997 1998
------------------ ------------------ --------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF EXERCISE OF EXERCISE OF EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------- -------- ------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, beginning of
year.................. 8,260 $ 4.24 282,720 $ .12 632,720 $3.37
Expired during year..... -- -- -- -- (2,679) $1.40
Granted during year..... 274,460 $.00016 350,000 $6.00 1,305,000 $2.77
------- ------- ------- ----- --------- -----
Balance, end of year.... 282,720 $ .12 632,720 $3.37 1,935,041 $2.97
Exercisable at end of
year.................. 282,720 $ .12 532,720 $2.88 1,135,041 $3.11
</TABLE>
The following table summarizes the pro forma consolidated results of
operations of VDC as though the fair value based accounting method in SFAS 123
had been used in accounting for stock options.
<TABLE>
<CAPTION>
FOR YEAR ENDED
-----------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Pro forma results of operations:
Net loss............................ $(1,891,702) $(4,515,052) $(4,271,717)
Net loss per share.................. $ (1.35) $ (1.80) $ (1.31)
</TABLE>
The fair value of each option granted is estimated on the date of grant
using the Black-Scholes model with the following assumptions: expected
volatility of 50.0%, risk-free interest rate of 6.25%, expected dividends of $0
and expected terms of 5 years.
NOTE 13: SUBSEQUENT EVENTS
In October 1998, the Company received notification from The Nasdaq Stock
Market that the Company was not in compliance with the net tangible
assets/marketplace capitalization/net income requirement for continued listing
on The Nasdaq SmallCap Market based upon the Company's Quarterly Report on Form
10-QSB for the period ended June 30, 1998. While The Nasdaq Stock Market noted
that the Company provided internal financial statements which demonstrated
compliance with the requirement, as a result of the Company's "burn rate", The
Nasdaq Stock Market concluded that the
F-23
<PAGE> 88
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
Company would fall below the minimum requirement for continued listing after
November 1, 1998. In December 1998, at a Nasdaq Hearing, the Company presented a
definitive plan to The Nasdaq Stock Market to demonstrate its ability to
maintain continued compliance with the Nasdaq net tangible asset requirement.
The Company's plan included the completion of a private placement of its Common
Stock, as well as a guarantee of additional capital contributions through March
31, 1999. Subsequent to the Hearing, the Company has completed the private
placement of its Common Stock as discussed below. As a result, the Company
believes that it is and will continue to be in compliance with all Nasdaq
continued listing requirements, although there can be no assurance that The
Nasdaq Stock Market will concur.
In October 1998 Mr. David E. Goodman, formerly VDC's Executive Vice
President and Chief Operating Officer, resigned his positions with VDC. Under
the terms of Mr. Goodman's severance, VDC agreed to continue his salary and
benefits through January 30, 1999. Other employees of VDC, including Randy S.
Selman, VDC's Chief Executive Officer, have assumed Mr. Goodman's duties.
In December 1998 the holders of VDC's Series A Convertible Preferred Stock
and Series A-1 Convertible Preferred Stock converted their shares into shares of
VDC's Common Stock pursuant to the designations, rights and preferences of such
securities. The 150 shares of Series A Convertible Preferred Stock and the 150
shares of the Series A-1 Convertible Preferred Stock, which represented 100% of
the issued and outstanding shares of those series of preferred stock, were
converted into an aggregate of 917,490 shares of Common Stock. Subsequent to
their conversion, the shares of Series A Convertible Preferred Stock and Series
A-1 Convertible Preferred Stock were returned to the treasury of VDC with the
status of authorized but unissued securities.
Also during November and December 1998 VDC sold an aggregate of 482,500
shares of its Common Stock, to a group of accredited or otherwise sophisticated
investors in a private placement exempt from registration under the Securities
Act of 1933, as amended. VDC received approximately $940,000 in gross proceeds
from such private placement. In addition, during December 1998 holders of
certain of VDC's warrants exercised such warrants pursuant to their terms,
resulting in gross proceeds to VDC of approximately $214,000. In connection with
such exercises, VDC issued an aggregate of 88,650 shares of its Common Stock.
Also in December 1998, EDnet sold substantially all of the assets and
certain of the liabilities of its wholly-owned subsidiary, Internet Business
Solutions, Inc. ("IBS"), for a purchase price of $1,000,000. The assets sold
included office and computer equipment used by IBS in its business of web site
development and design, as well as receivables and certain other intangible
assets. At closing, EDnet received $900,000 of the purchase price, with the
remaining $100,000 deposited into an interest bearing escrow account established
for the benefit of EDnet. Such amount will be released in full to EDnet in
increments upon the termination of the statute of limitations governing certain
potential claims against IBS or the buyer connected with the disposition of
IBS's assets, or upon the earlier agreement of the buyer.
F-24
<PAGE> 89
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
Subsequent to year end, the Company established a credit line with a
financial institution in the amount of $250,000. The credit line bears interest
at the institution's published reference rate plus 2.5% and has a stated
maturity date of November 1, 1999.
F-25
<PAGE> 90
VISUAL DATA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
1999
------------
(UNAUDITED)
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 2,919,171
Restricted cash........................................... 100,000
Accounts receivable, net of allowance for doubtful
accounts of $45,749 at March 31, 1999.................. 649,402
Prepaid expenses.......................................... 503,386
Other current assets...................................... 258,023
------------
Total Current Assets.............................. 4,429,982
PROPERTY, PLANT AND EQUIPMENT, NET.......................... 3,285,260
EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED........... 798,203
OTHER....................................................... 208,548
------------
Total assets...................................... $ 8,721,993
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 745,677
Deferred revenue.......................................... 227,690
Current portion of obligations under capital leases....... 13,076
Current portion of mortgage note payable.................. 271,108
Line of credit............................................ 50,000
Notes payable............................................. 40,500
------------
Total Current Liabilities......................... 1,348,051
------------
Obligations under capital leases, net of current
portion................................................ 11,029
Mortgage note payable, net of current portion............. 677,768
------------
688,797
------------
Minority Interest........................................... 657,082
------------
(Continued)
</TABLE>
F-26
<PAGE> 91
<TABLE>
<CAPTION>
MARCH 31,
1999
------------
(UNAUDITED)
<S> <C>
STOCKHOLDERS' EQUITY:
Preferred Stock, Par Value $.0001 Per Share:
Authorized 5,000,000 Shares:
Series A Convertible Preferred Stock, Designated 300
Shares, None Issued and Outstanding at March 31,
1999................................................... --
Series A-1 Convertible Preferred Stock, Designated 150
Shares, None Issued and Outstanding at March 31,
1999................................................... --
Common Stock, Par Value $.0001 Per Share; Authorized
20,000,000 Shares; 5,744,859 and 3,732,100 Issued and
Outstanding at March 31, 1999.......................... 574
Additional paid-in capital................................ 18,461,683
Accumulated deficit....................................... (12,434,194)
------------
Total Stockholders' Equity........................ 6,028,063
------------
Total Liabilities and Stockholders' Equity........ $ 8,721,993
============
</TABLE>
The accompanying notes to unaudited condensed consolidated financial statements
are an integral part of this balance sheet.
F-27
<PAGE> 92
VISUAL DATA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31,
--------------------------
1998 1999
----------- -----------
<S> <C> <C>
REVENUE............................................. $ 489,041 $ 2,117,901
OPERATING COSTS
Cost of sales..................................... -- 1,309,766
Selling, general and administrative............... 545,317 1,901,722
Compensation and related costs.................... 580,831 927,232
Production........................................ 31,231 146,968
Occupancy......................................... 72,180 73,614
Professional and consulting fees.................. 401,926 719,573
----------- -----------
Total Operating Costs..................... 1,631,485 5,078,875
----------- -----------
Loss from Operations.............................. (1,142,444) (2,960,974)
----------- -----------
OTHER INCOME (EXPENSE)
Interest income................................... 46,700 33,483
Rental income..................................... 41,428 39,652
Interest expense.................................. (44,180) (57,980)
Minority interest................................. -- 126,250
----------- -----------
Total Other Income........................ 43,948 141,405
----------- -----------
Loss Before Taxes................................. (1,098,496) (2,819,569)
INCOME TAXES........................................ -- 4,000
----------- -----------
Net Loss.......................................... $(1,098,496) $(2,823,569)
=========== ===========
Net Loss Per Share -- Basic and Diluted........... $ (0.36) $ (0.58)
=========== ===========
Weighted Average Shares of Common Stock
Outstanding.................................... 3,078,585 4,893,186
=========== ===========
</TABLE>
The accompanying notes to unaudited condensed consolidated financial statements
are an integral part of these financial statements.
F-28
<PAGE> 93
VISUAL DATA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31,
--------------------------
1998 1999
----------- -----------
<S> <C> <C>
Cash used in operating activities................... $(1,236,991) $(3,002,792)
Cash provided by (used in) investing activities..... (259,598) 528,658
Cash provided by (used in) financing activities..... (42,256) 4,802,457
----------- -----------
Net increase (decrease) in cash and cash
equivalents....................................... (1,538,845) 2,328,323
Cash and cash equivalents:
Beginning of period............................... 2,554,180 590,848
----------- -----------
End of period..................................... $ 1,015,335 $ 2,919,171
=========== ===========
</TABLE>
The accompanying notes to unaudited condensed consolidated financial statements
are an integral part of these financial statements.
F-29
<PAGE> 94
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: GENERAL
NATURE OF BUSINESS
Visual Data Corporation ("VDC" or the "Company") (NASDAQ:VDAT) and its
wholly owned subsidiaries are in the business of producing, marketing and
distributing video information libraries intended for use by the general public
through various distribution channels, primarily in the United States. These
distribution channels include the Internet and Interactive television ("ITV").
The information libraries contain short concise vignettes on various topics such
as travel, healthcare and medicine, nursing homes, timeshare properties and
business news. Currently the primary distribution channel for all of VDC's
libraries is the Internet.
EDnet, Inc. ("EDnet") (OTCBB:DNET), a 51% owned subsidiary of VDC purchased
in June 1998, develops and markets integrated systems for the delivery, storage,
and management of professional quality digital communications for media-based
applications, including audio and video production for the U. S. entertainment,
advertising, newsroom and public relations industries. EDnet, through strategic
alliances with long-distance carriers, regional telephone companies, satellite
operators, and independent fiber optic telecommunications providers, has
established a worldwide network that enables the exchange of high quality audio,
video, multimedia, and data communications. It provides engineering services and
application-specific technical advice, audio, video, and networking hardware and
software as part of its business. Ednet's revenues represent $1,891,930 for the
six months ended March 31, 1999 in the accompanying unaudited condensed
consolidated financial statements.
INTERIM FINANCIAL DATA
In the opinion of management, the accompanying unaudited financial
statements have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission. These financial
statements do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. The
annual financial statements of the Company as of September 30, 1998 should be
read in conjunction with these statements. The financial information included
herein has not been audited. However, management believes the accompanying
unaudited interim financial statements contain all adjustments, consisting of
only normal recurring adjustments, necessary to present fairly the consolidated
financial position of VDC and subsidiaries as of March 31, 1999 and the results
of their operations and cash flows for the six months ended March 31, 1998 and
1999. The results of operations and cash flows for the period are not
necessarily indicative of the results of operations or cash flows for a full
year.
NOTE 2: REFINANCING OF MORTGAGE
In March 1999, the Company negotiated an extension of its mortgage note
with the lender. The term of the note was extended by forty two (42) months and
is now due on September 30, 2002. The note requires monthly payments of
approximately $10,000 and a balloon payment of approximately $800,000 at
September 30, 2002.
F-30
<PAGE> 95
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3: LINE OF CREDIT
In December 1998, the Company negotiated a $250,000 line of credit for
EDnet with Union Bank of California. The credit line bears interest at the
institution's published reference rate plus 2.5% and has a stated maturity date
of November 1, 1999.
NOTE 4: CONVERSION OF PREFERRED STOCK
In December 1998, the holders of VDC's Series A Convertible Preferred Stock
and Series A-1 Convertible Preferred Stock converted their shares into shares of
the Company's Common Stock pursuant to the designations, rights and preferences
of such securities. The 150 shares of Series A Convertible Preferred Stock and
the 150 shares of the Series A-1 Convertible Preferred Stock, which represented
100% of the issued and outstanding shares of those series of Preferred Stock,
were converted into an aggregate of 917,490 shares of Common Stock.
NOTE 5: PRIVATE PLACEMENT OF COMMON STOCK
In November and December 1998 the Company sold to 20 accredited investors a
total of 532,500 shares of its common stock for gross proceeds of $1,040,000. Of
these shares, a total of 332,500 were granted piggyback registration rights.
In February 1999, the Company completed a private placement of its common
stock to institutional investors. Net proceeds of approximately $2,600,000 were
received in exchange for 333,334 shares. These investors were granted piggyback
registration rights. In connection with the offering, the placement agent
received 8,334 one year warrants with an exercise price of $14.063. Pursuant to
the terms contained in an investment banking agreement executed in November
1998, the placement agent also received a total of 105,000 five year warrants
exercisable at prices ranging from $2.00 to $3.00.
NOTE 6: SALE OF EDNET'S IBS SUBSIDIARY
In December 1998, EDnet sold substantially all of the assets and certain of
the liabilities of its wholly-owned subsidiary, Internet Business Solutions,
Inc. ("IBS"), for a sale price of $1,000,000. The assets sold included office
and computer equipment used by IBS in its business of web site development and
design, as well as receivables and certain other intangible assets. EDnet
recognized a gain of approximately $663,000 on the sale. The Company recorded
its portion of the gain, approximately $338,000, as a reduction of excess of
purchase price over net assets acquired.
NOTE 7: NASDAQ COMPLIANCE
In October 1998, the Company received notice that it had not been in
compliance with the net tangible asset requirement of the Nasdaq Stock Market
(the "Nasdaq") at June 30, 1998. While the Nasdaq noted that the Company
provided internal financial statements which demonstrated subsequent compliance
with the requirement, as a result of the Company's "burn rate", they concluded
that the Company would fall below the minimum requirement for continued listing
after November 1, 1998. The Company presented a definitive plan to a Nasdaq
Listing Qualifications Panel in December 1998 to
F-31
<PAGE> 96
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
demonstrate its ability to maintain continued compliance with the Nasdaq net
tangible asset requirement and in January 1999 the Company was informed of the
Nasdaq Amex Stock Market's decision to continue the listing of the Company's
securities on The Nasdaq SmallCap Market.
F-32
<PAGE> 97
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of EDnet, Inc.
We have audited the accompanying consolidated balance sheets of EDnet, Inc.
and subsidiaries as of September 30, 1998, June 30, 1998, and June 30, 1997 and
the related consolidated statements of operations, stockholders' equity, and
cash flows for the three months ended September 30, 1998 and for the years ended
June 30, 1998 and 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of EDnet, Inc. and
subsidiaries as of September 30, 1998, June 30, 1998, and June 30, 1997 and the
consolidated results of their operations and their cash flows for the three
months ended September 30, 1998 and for the years ended June 30, 1998 and 1997,
in conformity with generally accepted accounting principles.
/s/ BURR, PILGER & MAYER
--------------------------------------
Burr, Pilger & Mayer
San Francisco, California
November 6, 1998, except for
Note 14, as to which the
date is December 18, 1998
F-33
<PAGE> 98
EDNET, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND
JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30, JUNE 30,
1998 1998 1997
------------- ---------- ----------
<S> <C> <C> <C>
Assets
Current assets:
Cash.................................. $ 88,470 $ 32,911 $ 31,067
Accounts receivable, net of allowance
for doubtful accounts of $8,500,
$17,502 and $31,875 at September
30, 1998 and June 30, 1998 and
1997, respectively (Note 3)........ 574,800 471,341 445,121
Account and interest
receivable -- related party (Note
4)................................. 33,008 -- --
Inventories........................... 122,986 87,157 202,913
Prepaid expenses...................... 4,601 58,823 --
Other current assets.................. 826 16,665 25,523
---------- ---------- ----------
Total current assets.......... 824,691 666,897 704,624
Property and equipment, net (Note 5).... 380,416 391,481 556,533
Investment.............................. -- -- 166,667
Other assets............................ 6,455 13,711 7,237
---------- ---------- ----------
$1,211,562 $1,072,089 $1,435,061
========== ========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable...................... $ 303,628 $ 388,325 $1,648,165
Accrued expenses...................... 239,476 294,980 313,241
Deferred revenue...................... 33,421 21,286 69,193
Line of credit (Note 7)............... 8,214 8,872 34,627
Notes payable -- related party (Note
7)................................. 240,500 40,500 55,500
Notes payable -- other (Note 7)....... -- -- 1,440,000
Current portion of capital lease
obligations (Note 10).............. 17,147 9,288 27,817
---------- ---------- ----------
Total current liabilities..... 842,386 763,251 3,588,543
Capital lease obligations (Note 10)..... 15,058 11,470 20,904
---------- ---------- ----------
Total liabilities............. 857,444 774,721 3,609,447
---------- ---------- ----------
</TABLE>
F-34
<PAGE> 99
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30, JUNE 30,
1998 1998 1997
------------- ---------- ----------
<S> <C> <C> <C>
Commitments and contingency (Notes 10)
Stockholders' equity: (Note 11)
Convertible preferred stock; $1,000
par value; 1,750 shares authorized;
150 shares issued and outstanding
in 1997............................ -- -- 117,541
Common stock; $0.001 par value;
50,000,000 shares authorized;
16,761,836, 16,761,836 and
5,740,465 shares issued and
outstanding at September 30, 1998
and June 30, 1998 and 1997,
respectively....................... 16,761 16,761 5,740
Additional paid-in capital............ 6,755,443 6,755,443 4,411,559
Secured note receivable (Note 4)...... (283,746) (283,746) --
Accumulated deficit................... (6,134,340) (6,191,090) (6,709,226)
---------- ---------- ----------
Total stockholders' equity
(accumulated deficit)...... 354,118 297,368 (2,174,386)
---------- ---------- ----------
$1,211,562 $1,072,089 $1,435,061
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-35
<PAGE> 100
EDNET, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
AND FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30, JUNE 30,
1998 1998 1997
------------- ---------- -----------
<S> <C> <C> <C>
Revenue:
Equipment sales...................... $ 283,573 $ 874,785 $ 961,677
Installation and monthly fees........ 153,423 610,514 541,856
Usage fees........................... 338,671 1,617,291 1,305,992
Web design and consulting............ 348,811 784,528 862,525
Rental fees.......................... 18,275 99,384 117,993
Other................................ 4,275 17,839 17,327
---------- ---------- -----------
1,147,028 4,004,341 3,807,370
Cost of sales.......................... 680,078 2,602,494 2,277,118
---------- ---------- -----------
Gross profit......................... 466,950 1,401,847 1,530,252
Sales and marketing.................... 129,052 666,985 948,549
Research and development............... -- -- 1,017,233
Operating expenses..................... 281,990 1,490,593 2,817,355
---------- ---------- -----------
Income (loss) from operations before
other income (expenses) and
provision for income taxes and
extraordinary
item.............................. 55,908 (755,731) (3,252,885)
---------- ---------- -----------
Other income (expenses):
Interest income...................... 5,993 4,166 1,837
Interest expense..................... (5,151) (63,772) (147,166)
Gain (loss) on sale of equipment..... -- 3,160 (853)
Goodwill write-off, net.............. -- -- (867,214)
Gain on sale of investment........... -- 422,225 --
Forgiveness of debt.................. -- 200,000 --
---------- ---------- -----------
Total other income
(expenses)................ 842 565,779 (1,013,396)
---------- ---------- -----------
Income (loss) before provision for
income taxes and extraordinary
item.............................. 56,750 (189,952) (4,266,281)
Provision for income taxes (Note 8).... -- 2,400 3,266
---------- ---------- -----------
Income (loss) before extraordinary
item.............................. 56,750 (192,352) (4,269,547)
Extraordinary item-gain on
restructuring of debt (no applicable
income taxes)........................ -- 710,488 --
---------- ---------- -----------
Net income (loss).................... $ 56,750 $ 518,136 $(4,269,547)
========== ========== ===========
Basic income (loss) per share (Note 9):
Income (loss) before extraordinary
item.............................. Nil $ (0.02) $ (0.89)
Net income (loss).................... Nil $ 0.07 $ (0.89)
Diluted income (loss) per share (Note
9):
Income (loss) before extraordinary... Nil $ (0.02) $ (0.89)
Net income (loss).................... Nil $ 0.07 $ (0.89)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-36
<PAGE> 101
EDNET, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
AND FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK ADDITIONAL SECURED
-------------------- ------------------ PAID-IN NOTE ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL RECEIVABLE DEFICIT TOTAL
---------- ------- ------ --------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JULY 1, 1996.... 4,468,322 $ 4,468 -- -- $2,758,644 $ -- $(2,439,679) $ 323,433
Common shares issued
under IBS earn-out
agreement.............. 125,000 125 -- -- 195,188 -- -- 195,313
Common shares issued
under Regulation D
offerings.............. 582,143 582 -- -- 755,792 -- -- 756,374
Common shares issued
pursuant to consulting
agreement.............. 500,000 500 -- -- 652,000 -- -- 652,500
Common shares issued
under conversion of
Viscorp notes.......... 65,000 65 -- -- 49,935 -- -- 50,000
Preferred shares issued
under Regulation S
offering............... -- -- 150 $ 117,541 -- -- -- 117,541
Net loss................. -- -- -- -- -- (4,269,547) (4,269,547)
---------- ------- ---- --------- ---------- --------- ----------- -----------
Ending balance, June 30,
1997................... 5,740,465 5,740 150 117,541 4,411,559 -- (6,709,226) (2,174,386)
Common shares issued
under Regulation D
offering............... 738,000 738 -- -- 126,382 -- -- 127,120
Common shares issued
under S-8 offering..... 400,000 400 -- -- 399,600 -- -- 400,000
Common shares issued to
Rusell & Onggara....... 1,000,000 1,000 -- -- 374,000 -- -- 375,000
Conversion of preferred
shares to common....... 150,000 150 (150) (117,541) 117,391 -- -- --
Common shares issued
pursuant to consulting
service................ 169,954 170 -- -- 21,074 -- -- 21,244
Common shares issued to
VDC.................... 8,563,417 8,563 -- -- 1,305,437 (283,746) -- 1,030,254
Net income............... -- -- -- -- -- -- 518,136 518,136
---------- ------- ---- --------- ---------- --------- ----------- -----------
Ending balance, June 30,
1998................... 16,761,836 16,761 -- -- 6,755,443 (283,746) (6,191,090) 297,368
Net income............... -- -- -- -- -- -- 56,750 56,750
---------- ------- ---- --------- ---------- --------- ----------- -----------
Ending balance, September
30, 1998............... 16,761,836 $16,761 -- $ -- $6,755,443 $(283,746) $(6,134,340) $ 354,118
========== ======= ==== ========= ========== ========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-37
<PAGE> 102
EDNET, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
AND FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30, JUNE 30,
1998 1998 1997
------------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................... $ 56,750 $ 518,136 $(4,269,547)
Adjustments to reconcile net income
(loss) to cash used in operating
activities:
Stock issued in lieu of
consideration for services....... -- 421,244 847,813
Goodwill write-off.................. -- -- 867,213
Depreciation and amortization....... 52,888 199,458 409,171
(Gain) loss on sale of fixed
assets........................... -- (3,160) 853
Gain on sale of investment.......... -- (422,225) --
Gain on write-off of note payable... -- (200,000) --
Inventory write-off................. -- 49,061 --
Noncash debt restructure............ -- (773,026) --
(Increase) decrease in assets:
Accounts receivable.............. (136,467) (26,220) 32,955
Inventories...................... (35,829) 66,695 (55,504)
Prepaid expenses................. 70,061 (58,823) --
Other current assets............. -- 8,858 (11,225)
Other assets..................... 7,256 (6,474) 72,105
Increase (decrease) in liabilities:
Accounts payable................. (84,697) (868,083) 988,456
Accrued expenses................. (43,141) 16,739 (76,761)
Deferred revenue................. -- (47,907) (430)
--------- ----------- -----------
Net cash used in operating
activities............... (113,179) (1,125,727) (1,194,901)
--------- ----------- -----------
Cash flows from investing activities:
Purchase of property and
equipment........................ (25,849) (31,246) (256,259)
Sale of investment.................. -- 588,892 --
Change in investment from
spin-off......................... -- -- (166,667)
--------- ----------- -----------
Net cash (used in) provided
by investing
activities............... (25,849) 557,646 (422,926)
--------- ----------- -----------
</TABLE>
F-38
<PAGE> 103
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30, JUNE 30,
1998 1998 1997
------------- ----------- -----------
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from borrowing............. 200,000 -- 750,000
Principal payments on long-term
debt............................. -- (115,481) (195,491)
Payments on capital leases.......... (4,527) (27,963) (19,394)
Sale of common stock................ -- 739,124 756,374
Sale of preferred stock............. -- -- 117,541
Change in line of credit............ (886) (25,755) 17,989
--------- ----------- -----------
Net cash provided by
financing activities..... 194,587 569,925 1,427,019
--------- ----------- -----------
Net increase (decrease) in
cash..................... 55,559 1,844 (190,808)
Cash at beginning of year............. 32,911 31,067 221,875
--------- ----------- -----------
Cash at end of year................... $ 88,470 $ 32,911 $ 31,067
========= =========== ===========
</TABLE>
Supplemental disclosure of cash flow information (see Note 13).
The accompanying notes are an integral part of these financial statements.
F-39
<PAGE> 104
EDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
EDnet, Inc. (the Company), a Colorado corporation, and its subsidiaries
develop and market integrated systems for the delivery, storage, and management
of professional quality digital communications for media-based applications,
including audio and video production for the U.S. entertainment industry. The
Company, through strategic alliances with long-distance carriers, regional
telephone companies, satellite operators, and independent fiber optic
telecommunications providers, has established a worldwide network that enables
the exchange of high quality audio, video, multimedia, and data communications.
The Company provides engineering services and application-specific technical
advice, audio, video, and networking hardware and software as part of its
business. Additionally, through one of its wholly owned subsidiaries, the
Company provides Internet web site development and hosting services.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its principal subsidiaries, Entertainment Digital Network ("EDN") and
Internet Worldwide Business Solutions ("IBS"). All material intercompany
transactions have been eliminated in the consolidated financial statements.
Effective June 20, 1998, the Company became 51% owned by Visual Data
Corporation ("VDC"), a public company, through the issuance of 8,563,417
shares of the Company's common stock (See Note 11). Accordingly, the
results of the Company's operations will be consolidated with those of VDC for
periods subsequent to June 20, 1998.
USE OF ESTIMATES
The preparation of the financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those and other estimates.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Bad debts are provided on the allowance method based on historical
experience and management's evaluation of outstanding accounts receivable.
INVENTORIES
Inventories are valued at the lower of cost or market with cost being
determined on the first-in, first-out basis.
PROPERTY AND EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property and equipment are carried at cost and are depreciated on the
straight-line basis over their estimated useful lives which range from five to
seven years. The costs of
F-40
<PAGE> 105
EDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
leasehold improvements are amortized over the lesser of the lease term or the
life of the improvement. Expenditures for improvement or expansion of property
and equipment are capitalized. Repairs and maintenance are charged to expense as
incurred. When the assets are sold or retired, their cost and related
accumulated depreciation are removed from the accounts with the resulting gain
or loss reflected in the statement of operations.
INCOME TAXES
The Company accounts for income taxes using the liability method. Deferred
income tax assets and liabilities are computed annually for differences between
the financial reporting and tax bases of assets and liabilities that will result
in taxable or deductible amounts in the future based on enacted tax laws and
rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized.
FAIR VALUE OF FINANCIAL INSTRUMENTS AND CREDIT RISK
The carrying amounts of certain financial instruments, including cash,
accounts receivable, notes receivable, accounts payable, accrued expenses, notes
payable, and line of credit, approximate fair value because of the relatively
short-term maturity of these instruments. The Company and its subsidiaries
maintain cash in bank deposit accounts at accredited financial institutions. The
balances in these accounts may, at times, exceed federally insured limits.
LONG-LIVED ASSETS
Long-lived assets such as property and equipment and certain intangibles,
are evaluated for impairment when events or changes in circumstances indicate
that the carrying amount of the assets may not be recoverable. When the
indicators of impairment are present and the estimated undiscounted future cash
flows from the use of these assets are less than the assets' carrying value, the
related assets will be written down to fair value.
REVENUE RECOGNITION
A significant component of revenue relates to the sale of equipment which
is recognized when the equipment is installed. Installation fees are recognized
when the installation has been completed. Usage fees are recognized over the
period the equipment is used based on the relative usage level. Deferred
revenues represent billings in excess of revenue recognized.
STOCK-BASED COMPENSATION
The Company has elected to account for stock-based compensation under the
intrinsic value method in accordance with the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION. Under this method, no compensation expense is recorded for stock
options granted when the exercise price of the option granted is equal to or
exceeds the fair market value
F-41
<PAGE> 106
EDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of the Company's common stock The Company makes the pro forma disclosures of
stock-based compensation required by SFAS No. 123 (See Note 12).
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share have been computed according to SFAS No. 128,
EARNINGS PER SHARE for all periods presented. Basic earnings per share is
computed using the weighted average number of shares of common stock outstanding
during the periods. Diluted earnings per share is computed using the weighted
average number of common shares and common share equivalents outstanding during
the period.
RECLASSIFICATION
Certain reclassifications have been made to the prior year financial
statements in order for them to conform to the current year presentation.
NEW ACCOUNTING STANDARDS NOT YET ADOPTED
In 1997, the Financial Accounting Standards Board issued a new disclosure
standard, SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION, which establishes standards for the reporting and displaying of
operating business segments. This statement requires certain disclosures about
an entity's operating segments in annual and interim financial reports and also
requires certain related disclosures about products and services, geographic
areas and major customers. Application of this statement is required for
financial statements for fiscal years beginning after December 15, 1997. The
Company is currently evaluating whether this new disclosure will have an impact
on its financial statement reporting.
In March 1998 the Accounting Standards Executive Committee issued Statement
of Position ("SOP") 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE
DEVELOPED OR OBTAINED FOR INTERNAL USE. SOP 98-1 requires expenses incurred
during the application development stage of a software implementation project to
be capitalized and amortized over the useful life of the project. Application of
this statement is required for fiscal years beginning after December 15, 1998.
The Company does not expect adoption of this statement to have a material effect
on its financial position or results of operations.
2. ACQUISITION OF INTERNET WORLDWIDE BUSINESS SOLUTIONS
On June 24, 1996, the Company acquired all the outstanding shares of common
stock of IBS in a business combination accounted for as a purchase. IBS is
primarily an Internet service provider specializing in the development and
hosting of web sites. The results of operations of IBS are included in the
accompanying financial statements since the date of acquisition. The purchase
price of $1,162,568 included 311,284 shares of the Company's common stock, notes
payable in the aggregate amount of $500,000 and $40,000 of acquisition related
costs. The purchase price exceeded the estimated fair value of the net tangible
assets of IBS by $1,088,568 (See Note 6). The excess was reflected as goodwill
on the balance sheet and was originally amortized using the straight-line method
over a
F-42
<PAGE> 107
EDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
five-year period. During fiscal year 1997 the Company reevaluated the recovery
of its goodwill and determined that the remaining balance be written off.
In conjunction with the acquisition, under the terms of its nonstatutory
stock option plan, options to purchase an aggregate of 50,000 shares of common
stock of the Company were granted to certain IBS employees at $1.25 per share
(See Note 11).
On December 31, 1996, the Company amended the terms of its acquisition of
IBS by dividing IBS into two separate corporations. The inherent service
business continues to operate as IBS. IBS licensed the web site software
business to Breakthrough Software, Inc. ("BSI") and agreed to lend up to
$250,000 to BSI. In consideration, IBS issued certain convertible preferred
stock, which, after conversion into BSI nonvoting common stock, represented 40%
of BSI's outstanding common stock. At December 31, 1996, the Company recorded
its net book value allocated to BSI of $166,667 as its investment. Also as part
of the amendment, remaining acquisition notes payable from the Company to the
founders of IBS in the amount of $250,000 were canceled, and the remaining term
of an earn-out plan to such founders was also canceled.
In November 1997, new investors of BSI agreed to purchase the preferred
shares owned by the Company for $415,000 in cash and the assumption of certain
liabilities of $93,892. This transaction was completed in January 1998. In
addition, the Company received $80,000 from another investor from the sale of a
fully reserved note receivable related to BSI. A recap of the total
consideration shown in the June 30, 1998 financial statements is as follows:
<TABLE>
<S> <C>
Cash proceeds............................................... $415,000
Assumption of debt.......................................... 93,892
Note settlement............................................. 80,000
--------
Net proceeds and consideration.............................. 588,892
Net book value of investment................................ 166,667
--------
Gain on sale of investment.................................. $422,225
========
</TABLE>
3. ACCOUNTS RECEIVABLE
Accounts receivable at September 30, 1998, June 30, 1998, and June 30, 1997
comprise the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30, JUNE 30,
1998 1998 1997
------------- -------- --------
<S> <C> <C> <C>
Receivables................................ $353,757 $444,243 $379,529
Unbilled charges........................... 229,543 44,600 97,467
-------- -------- --------
583,300 488,843 476,996
Less allowance for doubtful accounts....... (8,500) (17,502) (31,875)
-------- -------- --------
Total...................................... $574,800 $471,341 $445,121
======== ======== ========
</TABLE>
Additions to the allowance for doubtful accounts are made as a percentage
of sales, adjusted annually based upon review of the individual accounts
receivable. Accounts are written off when deemed to be uncollectible. Total bad
debt expense was $3,218, $1,501
F-43
<PAGE> 108
EDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and $13,706 for the three months ended September 30, 1998, and the twelve months
ended June 30, 1998 and 1997, respectively.
4. RELATED PARTY TRANSACTIONS
A note receivable, at the face value of $283,746, due from VDC is part of
the payment resulting from VDC's purchase of 8,563,419 shares of the Company's
common stock (See Note 11). The note is secured by the acquired common stock and
a second mortgage. Principal payment of $56,749 plus interest is due annually
commencing July 1, 1999 until July 1, 2003; the note bears a fixed interest rate
of 7% per annum.
At September 30, 1998 VDC owed the Company $27,403 for the purchase of
equipment and $5,605 of accrued interest on the note receivable.
5. PROPERTY AND EQUIPMENT
Property and equipment are summarized by major category as follows at
September 30, 1998, June 30, 1998, and June 30, 1997:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30, JUNE 30,
1998 1998 1997
------------- ---------- ----------
<S> <C> <C> <C>
Network and related equipment........... $ 918,450 $ 881,473 $ 854,383
Furniture and fixtures.................. 239,804 234,984 245,963
Computer software....................... 16,801 16,802 7,954
Leasehold improvements.................. 26,183 26,183 26,183
---------- ---------- ----------
Subtotal................................ 1,201,238 1,159,442 1,134,483
Depreciation and amortization........... (820,822) (767,961) (577,950)
---------- ---------- ----------
Property and equipment, net............. $ 380,416 $ 391,481 $ 556,533
========== ========== ==========
</TABLE>
Depreciation and amortization included in the statements of income amounted
to $52,888, $199,458 and $409,171 for the three months ended September 30, 1998
and the twelve months ended June 30, 1998 and 1997, respectively.
The Company leases some equipment to customers under terms that are
accounted for as operating leases. Under the operating method, rental revenue
from leases is recognized ratably over the life of the lease and the related
equipment is depreciated over its estimated useful life.
F-44
<PAGE> 109
EDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. IMPAIRMENT OF LONG-LIVED ASSETS
The Company adopted SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT of
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF during the fiscal
year ended June 30, 1997. The Company recognized an impairment loss of $867,214
in 1997, related to the recoverability of goodwill, where the sum of the
estimated future undiscounted cash flows from IBS were less than the carrying
amount of the tangible and intangible assets. Following is a summary of net
goodwill write-off at June 30, 1997 (See Note 2):
<TABLE>
<S> <C>
Original value of goodwill.................................. $1,088,568
Addition to goodwill for cancellation of options per
earn-out agreement........................................ 195,313
Reduction to goodwill for write-off of debt................. (250,000)
Reduction to goodwill for net book value allocated to
investment for BSI........................................ (166,667)
----------
Remaining net goodwill written off.......................... $ 867,214
==========
</TABLE>
7. NOTES PAYABLE AND OTHER DEBT
NOTES PAYABLE
Notes payable-related party consist of the following
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30, JUNE 30,
1998 1998 1997
------------- -------- ----------
<S> <C> <C> <C>
Note payable to Eric Jacobs, a director of
VDC, with original principal of $200,000 at
12% interest. The principal balance and
accrued interest is due on August 3, 1999.
Accrued interest payable as of September 30,
1998 is $3,814.............................. $200,000 -- --
Notes payable to an officer and employees,
interest at 6% per annum, uncollateralized.
Accrued interest payable as of September 30,
1998 is $15,127. The notes are subordinated
to the $250,000 credit line credit line
discussed below for a period of six months.
Notes are due on demand thereafter.......... 40,500 $40,500 $ 55,500
-------- ------- ----------
Total notes payable-related party............. $240,500 $40,500 $ 55,000
======== ======= ==========
</TABLE>
F-45
<PAGE> 110
EDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Notes payable-other consist of the following:
<TABLE>
<S> <C> <C> <C>
Notes payable to an outside investor totaling
$200,000. The notes bear no interest and are
uncollateralized. The repayment of these notes
was disputed by the Company and in 1998, when
the debt could no longer be legally collected,
the notes were written off..................... -- -- $ 200,000
Senior notes payable to Morgan Fuller Capital
Group LLC with interest at 18% per annum. The
original amounts were $500,000, $300,000, and
$200,000. The Company repaid $100,000 in
February 1997. The notes were collateralized by
the Company's assets. The balance was settled
and repaid in 1998............................. -- -- 900,000
Notes payable to Mr. Irawan Onggara, a
shareholder and financial advisor, with
original amounts of $250,000, $100,000, and
$75,000 at 7% interest rate, collateralized by
assets of the Company subordinated to equipment
covered by individual capital leases, due
August 8, 1996, October 18, 1996, and November
20, 1996, respectively. The balance plus
accrued interest of $35,000 was converted to
1,000,000 shares of the Company's common stock
and warrants to purchase an additional
1,000,000 shares at $.375...................... -- -- 340,000
-------- ------- ----------
Total notes payable-other........................ -- -- $1,440,000
======== ======= ==========
</TABLE>
LINE OF CREDIT
The Company has a line of credit of $10,000 with a financial institution,
of which $8,214, $8,872 and $34,627 was outstanding as of September 30, 1998 and
June 30, 1998 and 1997, respectively. The line bears interest at 15.25% as of
September 30, 1998.
Subsequent to year end, the Company established a credit line with a
financial institution in the amount of $250,000. The credit line bears interest
at the institution's published reference rate plus 2.5% and has a stated
maturity date of November 1, 1999.
RESTRUCTURING OF DEBT
During the fiscal year ended June 30, 1998 the Company restructured it
accounts payable and debt which was a contingent requirement of the agreement
whereby VDC
F-46
<PAGE> 111
EDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
acquired its 51% ownership interest in the Company. The following table
summarizes the adjustments made according to the accounts payable and debt
settlement agreements:
<TABLE>
<CAPTION>
AMOUNT DEBT AMOUNT
DUE DISCHARGE SETTLED
---------- --------- --------
<S> <C> <C> <C>
EDnet, Inc.:
Trade and unsecured claims................ $ 257,376 $137,817 $119,559
Notes payable............................. 904,019 381,269 522,750
Entertainment Digital Network:
Trade and unsecured claims................ 179,664 109,435 70,229
Internet Worldwide Business Solutions:
Trade and unsecured claims................ 201,699 81,967 119,732
---------- -------- --------
Total............................. $1,542,758 $710,488 $832,270
========== ======== ========
</TABLE>
8. INCOME TAXES
The provision for income taxes for the fiscal year ended June 30, 1998
consists of California franchise taxes of $2,400. A reconciliation of the
expected and reported provision for income taxes follows:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30
THREE MONTHS ENDED --------------
SEPTEMBER 30, 1998 1998 1997
------------------ ----- -----
<S> <C> <C> <C>
Benefit (provision) expected based on
federal statutory rate.................... 34.0% 34.0% 34.0%
State taxes, net of federal benefit......... 6.1 6.1 6.1
Utilization of net operating loss
carryforwards............................. (40.1) -- --
Valuation allowance, net.................... -- (40.2) (40.2)
----- ----- -----
Net income tax provision.................... 0.0% 0.1% 0.1%
===== ===== =====
</TABLE>
The Company has Federal and California net operating loss (NOL)
carryforwards totaling approximately $6.0 million and $2.6 million,
respectively, as shown below. The utilization of these NOL carryforwards is
limited due to a change of ownership as defined in the Internal Revenue Code. As
a result, the federal and state NOLs can be utilized at the rate of $68,000 a
year through the year 2012.
F-47
<PAGE> 112
EDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At September 30, 1998 the Company had NOL carryforwards for tax purposes
expiring as follows:
<TABLE>
<CAPTION>
YEAR EXPIRES FEDERAL STATE
- ------------ ---------- ----------
<S> <C> <C>
2009.................................................. $ 204,000 --
2010.................................................. 386,000 --
2011.................................................. 1,181,000 $ 485,000
2012.................................................. 4,262,000 2,131,000
---------- ----------
Total loss carryforwards.............................. $6,033,000 $2,616,000
========== ==========
</TABLE>
The tax effects of significant temporary differences representing deferred
tax assets as of September 30, 1998 and June 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30, JUNE 30,
1998 1998 1997
------------- ----------- -----------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.... $ 2,208,000 $ 2,231,000 $ 2,445,000
Property and equipment.............. 27,800 28,000 28,000
----------- ----------- -----------
Total deferred tax assets............. 2,235,800 2,259,000 2,473,000
Less: valuation allowance............. (2,235,800) (2,259,000) (2,473,000)
----------- ----------- -----------
Net deferred tax asset...... -- -- --
=========== =========== ===========
</TABLE>
9. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed using the weighted average
number of shares of common stock outstanding during the periods. Diluted
earnings per share is computed using the weighted average number of common
shares and common share equivalents outstanding during the year. The computation
of net income (loss) per share was a follows:
<TABLE>
<CAPTION>
INCOME (LOSS) SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------- ------------- ---------
<S> <C> <C> <C>
Three months ended September 30, 1998:
Basic earnings per share............. $ 56,750 16,761,836 Nil
Effect of dilutive stock options and
warrants.......................... -- 5,344,156
--------- ---------- ------
Diluted earnings per share........... $ 56,750 22,105,992 Nil
========= ========== ======
Twelve months ended June 30, 1998:
Basic and diluted loss before
extraordinary item................ $(192,352) 7,936,358 $(0.02)
Extraordinary item................... 710,488 -- 0.09
--------- ---------- ------
Basic and diluted net loss per
share............................. $ 518,136 7,936,358 $ 0.07
========= ========== ======
</TABLE>
F-48
<PAGE> 113
EDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
INCOME (LOSS) SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------- ------------- ---------
<S> <C> <C> <C>
Twelve months ended June 30, 1997:
Basic loss per share................. $(4,269,547) 4,797,156 $(0.89)
Effect of dilutive stock options and
warrants.......................... -- -- --
----------- --------- ------
Diluted loss per share............... $(4,269,547) 4,797,156 $(0.89)
=========== ========= ======
</TABLE>
At September 30, 1998 options and warrants, for the purchase of 1,391,643
common shares at prices ranging from $.375 to $2.50 per share, for which the
exercise price was greater than the average market price of common shares were
not included in the computation of diluted earnings per share. At June 30, 1998
and 1997 options and warrants for the purchase of 12,126,944 and 1,536,889
common shares, respectively, at prices ranging from $.10 to $2.50 per share were
antidilutive and therefore not included in the computation of diluted earnings
per share.
10. COMMITMENTS
LEASE COMMITMENTS
As of September 30, 1998, the Company leases office space and certain
equipment under various noncancelable capital and operating leases. The leases
begin to expire in March 2000. Future minimum lease payments required under the
noncancelable leases are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR ENDING JUNE 30: LEASES LEASES
- -------------------- --------- -------
<S> <C> <C>
1999...................................................... $188,052 $20,183
2000...................................................... 149,572 13,864
2001...................................................... 111,092 4,239
2002...................................................... 111,092 --
2003...................................................... 86,203 --
-------- -------
Total minimum lease payments.................... $646,011 38,286
========
Less amount representing interest......................... 6,081
-------
Present value of net minimum lease payments............... 32,205
Less current portion...................................... 17,147
-------
Long-term portion............................... $15,058
=======
</TABLE>
Total rental expense for all operating leases for the three months ended
September 30, 1998 and June 30, 1998 and 1997 amounted to $52,146, $195,925 and
$192,509, respectively.
EMPLOYMENT CONTRACTS
The Company and its subsidiaries have entered into employment contracts
with several of their key employees that expire at different times through
December 31, 2000.
F-49
<PAGE> 114
EDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At September 30, 1998 the commitment under all of the contracts was
approximately $980,000.
11. STOCKHOLDERS' EQUITY
INVESTMENT BY VISUAL DATA CORPORATION
On June 20, 1998, the Company entered into an agreement with VDC, a public
company, to sell a 51% (8,563,417 shares) ownership interest in the Company's
common stock. The form of payment consisted of:
<TABLE>
<S> <C>
Cash........................................................ $ 698,004
VDC stock: 75,000 shares (valued at $3.75 per share)........ 281,250
VDS warrants: 50,000 (valued at $2.74 per warrant).......... 137,000
Note receivable -- secured common stock (see Note 4)........ 283,746
----------
1,400,000
Less expenses............................................... 86,000
----------
Net investment......................................... $1,314,000
==========
</TABLE>
In addition, the Company issued a blanket mirror option covering 6,542,722
shares (3,304,979 options and 3,237,743 warrants), which entitles VDC to acquire
shares equal to those actually purchased upon exercise of options and warrants
by others at $.10 per share. In addition, the Company granted the investment
banker who organized the transaction 750,000 warrants at an exercise price of
$.145. The transaction was contingent upon certain restructuring of accounts
payable debt the Company had incurred over the prior three years (See Note 7).
REGULATION D EQUITY PLACEMENTS
The Company has offered three Regulation D equity placements during the two
fiscal years ended June 30, 1998.
In August 1996, the Company offered up to a maximum of 1,000,000 units
(each consisting of one share of its common stock and one warrant) at a price
per unit of the lesser of $3.00 or the average closing bid price of its common
stock during a consecutive 30-day period immediately preceding the termination
date less 30%. Each share of stock came with a warrant to purchase common stock
through July 31, 1999 at a price of the lesser of $4.75 or the average closing
bid price during a consecutive 30-day period immediately preceding the
termination date as explained above. This offering was closed as of November 30,
1996, with 217,143 units sold at a price of $1.75 per share and a warrant
exercise price of $2.50 per share and 100,000 units sold at a price of $1.40 and
a warrant price of $2.50 per share.
In December 1996, the Company offered up to a maximum of 5,000,000 shares
of its common stock at a price of $1.00 per share. The offering terminated in
early 1997 with the sale of 265,000 shares at a price of $1.00 per share.
Holders of this common stock will have piggyback and Form S-3 registration
rights.
F-50
<PAGE> 115
EDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In July 1997, the Company offered up to a maximum of 3,750,000 units (each
consisting of one share of common stock and one warrant) for T Bar W Ranch
Investments ("T Bar") to purchase shares of the Company at a price of $.20 per
unit. Each warrant is exercisable until the fifth anniversary of the date of its
issuance and entitles the holder to purchase one share at an exercise price of
$1.00 per share. The warrants had an antidilution clause in their terms. T-Bar
invested $147,600 to acquire 738,000 units. The Company negotiated an agreement
with T-Bar in June 1998 to reduce the warrant exercise price to $.10 per share
in exchange for removal of the antidilution clause.
The Regulation D equity placement for these three offerings are summarized
as follows:
<TABLE>
<CAPTION>
COMMON GROSS
OFFERING DATE WARRANTS SHARES PROCEEDS EXPENSES PROCEEDS
- ------------- --------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
August 1996........... 317,143 317,143 $520,000 $26,450 $493,550
December 1996......... -- 265,000 265,000 2,176 262,824
July 1997............. 738,000 738,000 147,600 20,480 127,120
--------- --------- -------- ------- --------
Total................. 1,055,143 1,320,143 $932,600 $49,106 $883,494
========= ========= ======== ======= ========
</TABLE>
REGULATION S EQUITY OFFERING
On February 3, 1997, the Company offered up to $1,750,000 of its Series A
Preferred Stock at $1,000 per share in an offering exempt from registration
under Regulation S of the Securities Act of 1933. The shares were convertible
into common stock at any time until the third anniversary of their issuance at
the lesser of 70% of the market price or the closing price but subject to the
floor of $1.00 per share. One hundred fifty shares were purchased on February
27, 1997 for $150,000. Expenses on the offering amounted to $32,459 resulting in
net proceeds to the Company of $117,541. The Series A Preferred Stock was
converted to 150,000 common shares on May 29, 1998. The discount of 30% off the
market price on the conversion of stock was not recorded because the stock was
converted at $1.00 per share (the minimum), which was greater than the current
price at the conversion rate.
F-51
<PAGE> 116
EDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
WARRANTS
At September 30, 1998, the Company has reserved 6,475,486 common shares for
potential exercise of outstanding warrants issued in connection with various
equity and debt financing activities as follows:
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION
SEPTEMBER 30, 1998 WARRANTS DATE PRICE
- ------------------ --------- ---------- ------
<S> <C> <C> <C>
Regulation D warrants, June 1996.............. 317,143 1999 $2.500
Conversion of notes, August 1997.............. 1,000,000 2002 .375
Senior note warrants, November 1996........... 432,600 2003 .250
Investment banking warrants, June 1998........ 750,000 2003 .145
Regulation D warrants, July 1997.............. 738,000 2003 .100
VDC mirror warrants........................... 3,237,743 1999-2003 .100
---------
Total warrants...................... 6,475,486
</TABLE>
12. STOCK COMPENSATION PLANS
The Company adopted a stock option plan on April 3, 1998 which allows the
Company to grant incentive or nonqualified options up to three million
(3,000,000) shares of common stock to its employees, board members, and certain
other consultants in order to motivate them to maintain their commitment to the
Company at this stage of its development. Additionally, the Company has stock
options outstanding under two nonqualified stock option plans adopted in 1995.
The Company applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its stock option plans. Accordingly, no
compensation expense has been recognized as the exercise price has equaled the
stock fair value on the date of grant. Had compensation expense been determined
for stock options granted during three months ended September 30, 1998 and the
twelve months ended June 30, 1998 and 1997, based on the fair value at grant
dates consistent with SFAS No. 123, the Company's condensed Pro Forma Statement
of Operations for those periods would have been as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30, JUNE 30,
1998 1998 1997
------------- -------- -----------
<S> <C> <C> <C>
Net income (loss):
As reported........................... $56,750 $518,136 $(4,269,547)
======= ======== ===========
Pro forma............................. $46,998 $505,065 $(4,273,972)
======= ======== ===========
Basic and diluted income (loss) per
share:
As reported........................... Nil $ 0.07 $ (0.89)
======= ======== ===========
Pro forma............................. Nil $ 0.06 $ (0.89)
======= ======== ===========
</TABLE>
F-52
<PAGE> 117
EDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The pro forma amounts were estimated using the Black-Scholes option pricing
model with the following assumptions for fiscal 1998 and 1997, respectively:
risk-free interest rate of 5.5%, volatility factor of the expected market price
of the Company's common stock of 228%, no dividend growth rate since the Company
does not intend to pay dividends on its common stock; and expected lives equal
to the remaining option terms for both years.
The following table summarizes employee stock option plan activity for the
three months ended September 30, 1998 and the twelve months ended June 30, 1998
and 1997:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 JUNE 30, 1998 JUNE 30, 1997
--------------------- --------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE NUMBER EXERCISE
OF OPTIONS PRICE OF OPTIONS PRICE OF OPTIONS PRICE
---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning
of period............. 5,651,458 $0.12 787,146 $0.92 1,002,479 $0.99
Granted................. 620,000 0.10 5,346,479 0.10 56,667 1.25
Canceled................ -- -- 482,167 1.25 272,000 1.25
Exercised............... -- -- -- -- --
--------- ----- --------- ----- --------- -----
Outstanding............. 6,271,458 0.11 5,651,458 0.12 787,146 0.92
Eligible for exercise,
end of period......... 6,271,458 0.11 5,651,458 0.12 787,146 0.92
Weighted average fair
value of options
granted during the
year.................. -- 0.10 -- 0.10 -- 0.10
</TABLE>
The following table summarizes information regarding stock options
outstanding at September 30, 1998:
<TABLE>
<CAPTION>
WEIGHTED
RANGE OF AVERAGE WEIGHTED NUMBER AVERAGE
EXERCISE NUMBER REMAINING AVERAGE EXERCISABLE EXERCISE
PRICES OUTSTANDING LIFE EXERCISE PRICE AT 9/30/98 PRICE
- -------- ----------- --------- -------------- ----------- --------
<S> <C> <C> <C> <C> <C>
$1.25................ 74,500 2.1 years $1.25 74,500 $1.25
0.11................. 230,479 2.0 years 0.11 230,479 0.11
0.10................. 5,966,479 4.5 years 0.10 5,966,479 0.10
--------- ---------
6,271,458 6,271,458
========= =========
</TABLE>
F-53
<PAGE> 118
EDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. SUPPLEMENTAL CASH FLOW INFORMATION
The following table presents additional cash flow information for the three
months ended September 30, 1998 and the twelve months ended June 30, 1998 and
1997:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30, JUNE 30,
1998 1998 1997
------------- -------- --------
<S> <C> <C> <C>
Interest paid............................... $3,317 $97,193 $113,563
Income taxes paid........................... -- 2,400 3,268
Assets and lease obligations capitalized.... 15,974 -- --
Common stock issued for consulting
services.................................. -- 421,244 652,500
Common stock issued for settlement of note
and accrued interest...................... -- 375,000 --
Common stock issued for debt cancelation.... -- -- 50,000
Common stock issued for cancelation of IBS
earn-out plan............................. -- -- 195,313
</TABLE>
14. SUBSEQUENT EVENT
On December 4, 1998, the Company entered into a binding letter of intent
for the sale of assets of its subsidiary IBS. The buyer paid the Company cash
consideration of $1,000,000 on December 18, 1998, the closing date of the
transaction, and assumed certain outstanding liabilities of IBS.
F-54
<PAGE> 119
- ------------------------------------------------
- ------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR
TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST NOT RELY ON ANY
UNAUTHORIZED INFORMATION OR REPRESENTATIONS. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE UNDER THIS PROSPECTUS IMPLIES THAT THERE HAS BEEN
NO CHANGE IN OUR AFFAIRS SINCE THE DATE OF THIS PROSPECTUS OR THAT THE
INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AS OF ANY DATE SUBSEQUENT TO
THE DATE OF THIS PROSPECTUS. THIS PROSPECTUS IS AN OFFER TO SELL ONLY THE
SECURITIES OFFERED HEREBY, BUT ONLY UNDER CIRCUMSTANCES AND IN JURISDICTIONS
WHERE IT IS LAWFUL TO DO SO. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS
CURRENT ONLY AS OF ITS DATE.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................. 3
Risk Factors....................... 8
Use of Proceeds.................... 17
Price Range of Securities.......... 17
Dividend Policy.................... 18
Capitalization..................... 19
Dilution........................... 20
Selected Consolidated Financial
Data............................. 20
Management's Discussion and
Analysis of Financial Condition
and Results of Operations........ 22
Business........................... 28
Management......................... 43
Certain Transactions............... 53
Principal and Selling
Shareholders..................... 54
Description of Securities.......... 56
Underwriting....................... 59
Legal Matters...................... 62
Experts............................ 62
Available Information.............. 63
Index to Consolidated Financial
Statements....................... F-1
</TABLE>
- ------------------------------------------------
- ------------------------------------------------
- ------------------------------------------------
- ------------------------------------------------
2,000,000 SHARES
(VISUAL DATA CORP LOGO)
COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
[Cruttenden Roth Logo]
[H.C. Wainwright & Co. Logo]
, 1999
- ------------------------------------------------
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<PAGE> 120
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.*
<TABLE>
<S> <C>
SEC registration fee........................................ $ 14,870
NASD filing fee............................................. $ 6,178
Nasdaq National Market listing fee.......................... $ 55,000
Transfer Agent Fees......................................... $ 15,000
Cost of Printing and Engraving.............................. $125,000
Legal Fees and Expenses..................................... $200,000
Accounting Fees and Expenses................................ $100,000
Blue Sky Fees and Expenses.................................. $ 15,000
Miscellaneous............................................... $ 18,952
--------
Total............................................. $550,000
</TABLE>
- -------------------------
* Estimated
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Articles of Incorporation of the Company provide that every director
and every officer of the corporation, every former director and former officer
of the corporation, and every person who may have served at the request of the
corporation as a director or officer of another corporation in which the
corporation owns shares of capital stock or of which it is a creditor, and the
heirs, executors, administrators, and assignors of all of the above persons
shall be indemnified by the corporation for expenses actually and necessarily
incurred by him in connection with the defense of any action, suit, or
proceeding to which he may be a party by reason of his being or having been a
director or officer of the corporation or of such other corporation regardless
of whether or not he continues to be a director or officer at the time of
incurring such expenses, except with respect to matters as to which he shall be
finally adjudged in such action, suit, or proceeding to be liable for negligence
or misconduct in the performance of his duty. The rights of indemnification set
forth in the Articles of Incorporation shall not be exclusive of any other
rights to which such person may be entitled by law or otherwise.
The provisions of the Florida Business Corporation Act that authorize
indemnification do not eliminate the duty of care of the director and, in
appropriate circumstances, equitable remedies such as injunctive or other forms
of non-monetary relief will remain available under Florida law. In addition,
each director will continue to be subject to liability for: (a) violations of
criminal laws, unless the director had reasonable cause to believe his conduct
was lawful or had no reasonable cause to believe his conduct was unlawful; (b)
deriving an improper personal benefit from a transaction; (c) voting for, or
assenting to, an unlawful distribution; and (d) willful misconduct or conscious
disregard for the best interests of the Company in a proceeding by, or in the
right of, the Company to procure a judgment in its favor or in a proceeding by,
or in the right of, a shareholder. The statute does not affect the director's
responsibilities under any other law.
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<PAGE> 121
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In February and March 1996, certain shareholders who were accredited
investors loaned the Company an aggregate of $100,000. As an incentive for these
loans, these shareholders received warrants to purchase an aggregate of 25,000
shares of Common Stock at an exercise price of $1.40 per share. The warrants are
exercisable for a period of four years from the date of issuance. Each of these
shareholders had a pre-existing relationship with the Company, and was provided
with and had access to relevant information concerning the Company. The
securities were exempt from registration pursuant to Section 4(2) of the
Securities and Exchange Act of 1933, as amended (the "Securities Act").
Commencing in May 1996, the Company offered 17 units at $50,000 per unit to
15 accredited investors. Each unit consisted of a $50,000 Convertible Promissory
Note and 3,125 shares of Common Stock. Each $50,000 Note is convertible into
12,500 shares of Common Stock at $4.00 per Share. Each of the investors had
access to and were provided with relevant information concerning the Company.
The securities were exempt from registration pursuant to Rule 505 of Regulation
D and Section 4(2) of the Securities Act. The Company received gross proceeds of
$850,000, of which $739,500 was received in cash and $110,500 was paid to
registered broker-dealers as commissions for the sale of these securities
(including $25,500 for a non-accountable expense allowance).
Between July 1996 and September 1996, the Company issued 210,469 shares as
consideration for various services rendered to the Company. Of these shares, (i)
31,250 shares were issued in consideration for legal services valued at
$117,180; (ii) 15,625 shares were issued in consideration for medical consulting
services in connection with the Company's additional proposed libraries
(CareView and MedicalView) valued at $50,000; (iii) 3,282 shares were issued in
connection with the Company's agreement with Stratus Management valued at
$14,000; (iv) 19,687 shares were issued in consideration for the development of
the Company's overseas operations valued at $63,000; (v) 3,125 shares were
issued in connection with hotel management consulting services valued at
$10,000; and (vi) the remaining 137,500 shares were issued in consideration for
general business and strategic planning consulting services valued at $440,000.
Each of the investors were accredited investors who had a previous relationship
with the Company or were provided with relevant information concerning the
Company. The securities were exempt from registration pursuant to Section 4(2)
of the Securities Act.
Between December 1996 and July 1997, the Company issued an aggregate of
125,000 shares of its common stock of the Company to 24 accredited investors who
had access to and were provided with relevant information concerning the
Company. These shares were issued in connection with an aggregate of $1,000,000
principal amount of promissory notes at 10% per annum, which notes are due upon
the earlier of (i) one month following the effective date of the Company's
Registration Statement or (ii) 12 months from the date of the notes. The
securities were exempt from registration pursuant to Rule 506 of Regulation D
and Rule 4(2) of the Securities Act.
On May 8, 1998, the Company completed the sale of 150 shares of the
Company's Series A Convertible Preferred Stock. The purchase resulted in gross
proceeds to the Company of $750,000. The placement was between the Company and 2
institutional investors. Each of these investors were accredited, and were
provided with and had access to relevant information concerning the Company. The
securities were exempt from registration pursuant to Rule 506 of Regulation D
and Section 4(2) of the Securities Act.
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On May 20, 1998, the Company acquired and closed on the acquisition of
certain assets of Digital Criteria Technologies Inc., a Florida corporation. The
Company purchased the assets in exchange for 140,000 shares of restricted common
stock of the Company and warrants to purchase an additional 70,000 shares of
common stock. The assets purchased were a 30% interest in CareerSelect(TM) and a
40% interest in "Real Estate Select." The investor was an accredited investor
who had access to and was provided with relevant information concerning the
Company. The securities were exempt from registration pursuant to Section 4(2)
of the Securities Act.
On July 27, 1998, the Company completed the acquisition of 51% of the
common stock of EDnet, a Colorado Corporation (8,563,417 shares of common
stock). The purchase price for the shares of common stock was approximately
$0.1635 per share. The consideration for the shares consisted of (a) cash in the
amount of $698,004.32; (b) 5 year warrants to purchase 50,000 shares of the
Company's restricted common stock, valued at $2.74 per warrant; (c) 75,000
shares of the Company's restricted common stock valued at $3.75 per share; and
(d) a secured promissory note of the Company in the aggregate principal amount
of $283,745.68. The note is secured by a mortgage on the Company's principal
executive offices. In addition, the Company received options to acquire at an
exercise price of $.10 per share, the number of shares actually purchased upon
exercise of each option, warrant and other convertible security of EDnet
outstanding at the date of closing. The investor was an accredited investor who
had access to and was provided with relevant information concerning the Company.
The securities were exempt from registration pursuant to Section 4(2) of the
Securities Act.
During July and August 1998, the Company received gross proceeds of
$675,000 from a private placement of 266,665 Shares of restricted common stock
to 9 accredited investors who had a pre-existing relationship with the Company
and had access to and were provided with relevant information concerning the
Company. The securities were exempt from registration pursuant to Rule 506 of
Regulation D and Section 4(2) of the Securities Act.
On August 11, 1998, the Company completed the sale of 150 shares of the
Company's Series A-1 Convertible Preferred Stock. The initial purchase resulted
in gross proceeds to the Company of $750,000. The placement was between the
Company and 1 institutional investor who had access to and was provided with
relevant information concerning the Company. The securities were exempt from
registration pursuant to Section 4(2) of the Securities Act.
In November and December of 1998, the Company issued 532,500 shares of its
common stock for gross proceeds of $1,040,000 to 20 accredited investors. Of
these shares a total of 332,500 were granted piggyback registration rights. Each
investor had a pre-existing relationship with the Company and had access to and
was provided with relevant information concerning the Company. The securities
were exempt from registration pursuant to Rule 506 of Regulation D and Section
4(2) of the Securities Act.
Also during November and December 1998, the Company issued 482,500 shares
of its common stock for gross proceeds of $940,000, to a group of accredited or
otherwise sophisticated investors. In addition, during December 1998, holders of
certain of the Company's warrants exercised such warrants pursuant to their
terms, resulting in gross proceeds to the Company of approximately $214,000. In
connection with such exercises, the Company issued an aggregate of 88,650 shares
of its common stock. Each of the investors were accredited investors who had a
pre-existing relationship with the Company
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and has access to and were provided with relevant information concerning the
Company. The securities were exempt from registration pursuant to Rule 506 of
Regulation D and Section 4(2) of the Act.
In December 1998, the holders of the Company's Series A Convertible
Preferred Stock and Series A-1 Convertible Preferred Stock converted their
shares into shares of the Company's common stock pursuant to the designations,
rights and preferences of such securities. The 150 shares of Series A
Convertible Preferred Stock and the 150 shares of the Series A-1 Convertible
Preferred Stock, which represented 100% of the issued and outstanding shares of
those series of preferred stock, were converted into an aggregate of 917,490
shares of common stock. Each of the investors had a pre-existing relationship
with the Company and had access to and were provided with relevant information
concerning the Company. The securities were exempt from registration pursuant to
Rule 506 of Regulation D and Section 4(2) of the Securities Act.
On February 10, 1999, the Company issued 333,334 shares of its common stock
for net proceeds of approximately $2,600,000 to certain institutional investors.
These investors were granted piggyback registration rights. In connection with
the offering, the placement agent received 8,334 one year warrants with an
exercise price of $14.063. Pursuant to the terms contained in an investment
banking agreement executed in November 1998, they also received a total of
105,000 five year warrants exercisable at prices ranging from $2.00 to $3.00.
Each of the investors were accredited, had a pre-existing relationship with the
Company and had access to and were provided with relevant information concerning
the Company. The securities were exempt from registration pursuant to Rule 506
of Regulation D and Section 4(2) of the Securities Act.
ITEM 16. EXHIBITS AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES.
(a) The exhibits constituting part of the Registration Statement are as
follows:
EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- -----------
<C> <S>
1(a) Form of Underwriting Agreement*
3(i)(a) Articles of Incorporation(1)
3(i)(b) Articles of Amendment dated July 26, 1993(1)
3(i)(c) Articles of Amendment dated January 17, 1994(1)
3(i)(d) Articles of Amendment dated October 11, 1994(1)
3(i)(e) Articles of Amendment dated March 25, 1995(1)
3(i)(f) Articles of Amendment dated October 31, 1995(1)
3(i)(g) Articles of Amendment dated May 23, 1996(1)
3(i)(h) Articles of Amendment dated May 5, 1998(2)
3(i)(i) Articles of Amendment dated August 11, 1998(6)
3(iii) By-laws(1)
4(c) Specimen Common Stock Certificate(1)
4(d) Specimen Common Stock Purchase Warrant (issued pursuant to
the Company's initial public offering on July 30, 1997)(1)
4(e) Form of Underwriter Warrant*
</TABLE>
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<PAGE> 124
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- -----------
<C> <S>
4(f) Form of Consulting Agreement*
5 Opinion of Atlas, Pearlman, Trop & Borkson, P.A.*
10(a) Agreement between HotelView Corporation and Pegasus Systems,
Inc. dated January 14, 1997(1)
10(b) Form of Stock Option Plan(1)
10(c) Third Amended and Restated Employment Agreement between the
Company and Randy S. Selman(7)
10(d) Third Amended and Restated Employment Agreement between the
Company and Alan Saperstein(7)
10(e) Contract for Purchase and Sale of Real Property(3)
10(f) Asset Purchase Agreement between the Company and Digital
Criteria Technologies, Inc.(4)
10(g) Securities Purchase Agreement between the Company and EDnet,
Inc.(5)
10(h) Option Agreement between the Company and EDnet, Inc.(5)
10(i) Agreement dated March 9, 1998 by and between Interval
International, Inc. and CondoView Corporation(8)
10(j) Agreement dated March 30, 1998 by and between Video News
Wire Corporation and P.R. Newswire, Inc.(8)
10(k) Securities Purchase Agreement between the Company and
Cranshire Capital, L.P. and Gilford Partners, L.P.(9)
10(l) Securities Purchase Agreement between the Company and Olive
Investors LLC(9)
21 Subsidiaries of the Company(10)
23(a) Consent of Arthur Andersen LLP*
23(b) Consent of Goldstein Lewin & Co.*
23(c) Consent of Burr, Pilger & Mayer*
23(d) Consent of Atlas, Pearlman, Trop & Borkson, P.A. (Included
in the opinion filed as Exhibit 5*
27 Financial Data Schedule(3)(9)(10)
99(a) Consent of Robert J. Wussler(11)
</TABLE>
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* Filed herewith
(1) Incorporated by reference to the exhibit of the same number filed with the
Company's Registration Statement on Form SB-2, Registration No. 333-18819,
as amended and declared effective by the Commission on July 30, 1997
(2) Incorporated by reference to the Company's Current Report on Form 8-K dated
May 8, 1998
(3) Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the year ended September 30, 1997
(4) Incorporated by reference to the Company's Current Report on Form 8-K dated
May 20, 1998
(5) Incorporated by reference to the Company's Current Report on Form 8-K dated
August 11, 1998
II-5
<PAGE> 125
(6) Incorporated by reference to the Company's Current Report on Form 8-K dated
August 21, 1998
(7) Incorporated by reference to the exhibit of the same number filed with the
Company's Registration Statement on Form S-3, Registration No. 333-62071,
as amended and declared effective by the Commission on November 3, 1998
(8) Incorporated by reference to the Company's Quarterly Report on Form
10-QSB/A for the period ended June 30, 1998 as filed with the Commission on
October 15, 1998
(9) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB
for the period ended December 31, 1998 as filed with the Commission on
February 17, 1999
(10) Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the year ended September 30, 1998.
(11) Incorporated by reference to the exhibit of the same number filed with the
Company's Registration Statement on Form S-1, Registration No. 333-79887,
as filed on June 3, 1999.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes that:
(a) (i) for purposes of determining any liability under the Securities Act,
as amended, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(ii) for the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, and controlling persons of the
registrant pursuant to Item 14, or otherwise, the registrant has been advised
that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
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<PAGE> 126
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Pompano Beach, State of
Florida on this 7th day of July, 1999.
VISUAL DATA CORPORATION
By: /s/ RANDY S. SELMAN
-----------------------------------
Randy S. Selman, President, Chief
Executive Officer
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ RANDY S. SELMAN Director, President, July 7, 1999
- --------------------------------------------------- Chief Executive Officer
Randy S. Selman
/s/ ALAN M. SAPERSTEIN Director, Vice President July 7, 1999
- --------------------------------------------------- and Secretary
Alan M. Saperstein
/s/ BEN SWIRSKY Director July 7, 1999
- ---------------------------------------------------
Ben Swirsky
/s/ BRIAN K. SERVICE Director July 7, 1999
- ---------------------------------------------------
Brian K. Service
/s/ ERIC JACOBS Director July 7, 1999
- ---------------------------------------------------
Eric Jacobs
/s/ PAULINE SCHNEIDER Chief Financial Officer, July 7, 1999
- --------------------------------------------------- Principal Financial and
Pauline Schneider Accounting Officer
</TABLE>
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
1(a) Form of Underwriting Agreement
4(e) Form of Underwriter Warrant
4(f) Form of Consulting Agreement
5 Opinion of Atlas, Pearlman, Trop & Borkson, P.A.
23(a) Consent of Arthur Andersen LLP
23(b) Consent of Goldstein Lewin & Co.
23(c) Consent of Burr, Pilger & Mayer
23(d) Consent of Atlas, Pearlman, Trop & Borkson, P.A. (included
in the opinion filed as Exhibit 5)
</TABLE>
<PAGE> 1
Exhibit - 1(A)
2,000,000 Shares
VISUAL DATA CORPORATION
Common Stock
UNDERWRITING AGREEMENT
New York, New York
_____________, 1999
Cruttenden Roth Incorporated and
H.C. Wainwright & Co., Inc.
as Representatives of the
several underwriters
c/o Cruttenden Roth Incorporated
24 Corporate Plaza
Newport Beach, CA 92660
Visual Data Corporation, a Florida corporation (the
"COMPANY"), hereby confirms its agreement with you. The Company proposes to
issue and sell to you and H.C. Wainwright & Co., Inc. (referred to together as
the "UNDERWRITER") pursuant to this Underwriting Agreement (the "AGREEMENT") an
aggregate of 1,600,000 shares (the "SECURITIES") of the Company's common stock,
par value $.0001 per share (the "COMMON STOCK"). The Shareholders listed on
SCHEDULE A hereto (the "SELLING SHAREHOLDERS") propose severally to issue and
sell to the Underwriters an aggregate of 400,000 shares of the Company's Common
Stock (the "FIRM SHAREHOLDERS' SHARES," referred to collectively together with
the Securities as the "FIRM SHARES"). The Selling Shareholders have also agreed
to grant you an option to purchase up to an additional 300,000 shares of Common
Stock (the "OPTION SHARES"). The Firm Shares and the Option Shares are referred
to together as the "SHARES." The Firm Shareholders' Shares and the Option
Shares are referred to together as the "SHAREHOLDERS' SHARES."
You have advised the Company and the Selling Shareholders
that you desire to purchase the Shares. The Company and the Selling
Shareholders confirm the agreement made by it with respect to the purchase of
the Shares by the Underwriter, as follows:
1. Representations and Warranties of the Company. The
Company represents and warrants to, and agrees with, the Underwriter that:
(a) A registration statement on Form S-1 (File
Nos. 333-79887) with respect to the Shares, including a prospectus subject to
completion, has been filed by the Company with the Securities and Exchange
Commission (the "COMMISSION") under the Securities Act of 1933, as amended (the
"ACT"), and in conformity with the requirements of the Act and the rules and
regulations of the Commission thereunder (the "RULES AND REGULATIONS"), and one
or more amendments to such registration statement may have been so filed and
such registration statement has been delivered to you. After the execution of
this Agreement, the Company will file with the Commission either (i) if such
registration statement, as it may have been amended, has been declared by the
Commission to be effective under the Act, either (A) if the Company relies on
Rule 434 under the Act, a Term Sheet (as hereinafter defined) relating to the
Shares, that shall identify the Preliminary Prospectus (as hereinafter defined)
that it
<PAGE> 2
supplements containing such information as is required or permitted by Rules
434, 430A and 424(b) under the Act or (B) if the Company does not rely on Rule
434 under the Act, a prospectus in the form most recently included in an
amendment to such registration statement (or, if no such amendment shall have
been filed, in such registration statement), with such changes or insertions as
are required by Rule 430A under the Act or permitted by Rule 424(b) under the
Act, and in the case of either clause (i)(A) or (i)(B) of this sentence as have
been provided to and approved by you prior to the execution of this Agreement,
or (ii) if such registration statement, as it may have been amended, has not
been declared by the Commission to be effective under the Act, an amendment to
such registration statement, including a form of prospectus, a copy of which
amendment has been furnished to and approved by you prior to the execution of
this Agreement. The Company may also file a related registration statement with
the Commission pursuant to Rule 462(b) under the Act for the purpose of
registering certain additional Shares, which registration shall be effective
upon filing with the Commission. As used in this Agreement, the term
"REGISTRATION STATEMENT" means the registration statement initially filed
relating to the Shares, as amended at the time when it was or is declared
effective under the Act, including all financial schedules and exhibits thereto
and including any information omitted therefrom pursuant to Rule 430A under the
Act and included in the Prospectus (as hereinafter defined), and including any
registration statement filed with the Commission pursuant to Rule 462(b); the
term "PRELIMINARY PROSPECTUS" means each prospectus subject to completion filed
with such registration statement or any amendment thereto (including the
prospectus subject to completion, if any, included in the Registration
Statement or any amendment thereto at the time it was or is declared effective
under the Act); the term "PROSPECTUS" means:
(i) if the Company relies on Rule 434 under the
Act, the Term Sheet relating to the Shares that is first
filed pursuant to Rule 424(b)(7) under the Act, together with
the Preliminary Prospectus identified therein that such Term
Sheet supplements;
(ii) if the Company does not rely on Rule 434
under the Act, the prospectus first filed with the Commission
pursuant to Rule 424(b) under the Act; or
(iii) if the Company does not rely on Rule 434
under the Act and if no prospectus is required to be filed
pursuant to Rule 424(b) under the Act, the prospectus
included in the Registration Statement;
and the term "TERM SHEET" means any term sheet that satisfies the requirements
of Rule 434 under the Act. Any reference herein to the "DATE" of a Prospectus
that includes a Term Sheet shall mean the date of such Term Sheet.
(b) The Commission has not issued any order
preventing or suspending use of the Registration Statement or any Preliminary
Prospectus. When any Preliminary Prospectus was filed with the Commission it
(i) contained all statements required to be stated therein in accordance with,
and complied in all material respects with the requirements of, the Act and the
Rules and Regulations and (ii) did not include any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order
2
<PAGE> 3
to make the statements therein, in the light of the circumstances under which
they were made, not misleading. When the Registration Statement or any
amendment thereto was or is declared effective under the Act, it (i) contained
or will contain all statements required to be stated therein in accordance
with, and complied or will comply in all material respects with the
requirements or, the Act and the Rules and Regulations and (ii) did not or will
not include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading. When the Prospectus or any Term Sheet that is a part
thereof or any amendment or supplement to the Prospectus is filed with the
Commission pursuant to Rule 424(b) (or, if the Prospectus or part thereof or
such amendment or supplement is not required to be so filed, when the
Registration Statement or the amendment thereto Containing such amendment or
supplement to the Prospectus was or is declared effective under the Act) and on
the Closing Date, the Prospectus, as amended or supplemented at any such time,
(i) contained or will contain all statements required to be stated therein in
accordance with, and complied or will comply in all material respects with the
requirements of, the Act and the Rules and Regulations and (ii) did not or will
not include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The foregoing provisions of this paragraph (b) do not
apply to statements or omissions made in any Preliminary Prospectus, the
Registration Statement or any amendment thereto or the Prospectus or any
amendment or supplement thereto in reliance upon and in conformity with written
information furnished to the Company by you specifically for use therein. It is
understood that the statements set forth in the Prospectus on the cover page
with respect to fees and discounts, paragraph one (1) and three (3) under the
heading "UNDERWRITING" and the identity of counsel to the Underwriter under the
heading "LEGAL MATTERS" constitute the only information furnished in writing by
or on behalf of the Underwriter for inclusion in the Registration Statement,
the Preliminary Prospectus and Prospectus, as the case may be.
(c) If the Company has elected to rely on Rule
462(b) and the Registration Statement has not been declared effective under the
Act (i) the Company has filed a Registration Statement in compliance with, and
that is effective upon filing pursuant, to Rule 462(b) and has received
confirmation of its receipt and (ii) the Company has given irrevocable
instructions for transmission of the applicable filing fee in connection with
the filing of the Rule 462(b) Registration Statement, in compliance with Rule
111 promulgated under the Act or the Commission has received payment of such
filing fee.
(d) Each of the Company and its subsidiary has
been duly organized and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, with full power and
authority (corporate and other) to own its properties and conduct its baseness
as described in the Registration Statement and Prospectus and is duly qualified
or licensed to do business as a foreign corporation and is in good standing in
each other jurisdiction in which the nature of its business or the character or
location of its properties requires such qualification, except where the
failure to so qualify will not materially affect the condition (financial or
otherwise), business, properties, prospects, net worth or results of operations
of the Company and its subsidiary, taken as a whole. The Company owns _______
shares (approximately _____% of all of the outstanding shares of capital stock,
of its subsidiary, EDnet, Inc. The Company has no other subsidiaries. Except
for the stock of its subsidiary, the
3
<PAGE> 4
Company does not control, directly or indirectly, any corporation, partnership,
joint venture, association or other business organization.
(e) The authorized, issued and outstanding
capital stock of the Company is as set forth in the Prospectus under
"CAPITALIZATION;" the shares of issued and outstanding capital stock of the
Company set forth thereunder have been duly authorized, validly issued, fully
paid and nonassessable; except as set forth in the Prospectus, no options,
warrants or other rights to purchase, agreements or other obligations to issue,
or agreements or other rights to convert any obligation into, any shares of
capital stock of the Company or the subsidiary have been granted or entered
into by the Company; and the Common Stock conforms in all material respects to
all statements relating thereto contained in the Registration Statement and
Prospectus.
(f) The Shares and the shares of Common Stock to
be issued upon exercise of the Underwriter's Warrants (as hereinafter defined)
when issued and delivered pursuant to this Agreement (and the Underwriter's
Warrants with respect to the shares of Common Stock to be issued upon the
exercise thereof), will be duly authorized, validly issued, fully paid and
nonassessable and free of preemptive rights of any security holder of the
Company. The Underwriter's Warrants when issued, paid for and delivered in
accordance with the terms of the Warrant Agreement (as hereinafter defined),
will be duly authorized, validly issued, fully paid and nonassessable and free
of preemptive rights of any security holder of the Company. Neither the filing
of the Registration Statement nor the offering or sale of the Shares as
contemplated in this Agreement gives rise to any rights, other than those which
have been waived or satisfied the existence of which have been disclosed to the
Underwriters, for or relating to the registration of any shares of Common
Stock, except as described in the Registration Statement.
(g) Each of this Agreement and the Warrant
Agreement have been duly and validly authorized. This Agreement has been, and
on the Closing Date the Warrant will be, executed and delivered by the Company
and, assuming due execution by the other party hereto and thereto, each
constitutes the valid and binding obligation of the Company enforceable against
the Company in accordance with their terms, except as enforceability may be
limited by applicable bankruptcy, insolvency or other laws affecting the rights
of creditors generally and the discretion of the courts in granting equitable
remedies. The Company has full power and lawful authority to authorize, issue
and sell the Shares to be sold by it hereunder on the terms and conditions set
forth herein. No consent, approval, authorization or order of, or any filing or
declaration with, any governmental authority is required for the consummation
of the transactions contemplated by this Agreement or in connection with the
issuance and sale of the Shares or the Underwriter's Warrants by the Company,
except such as have been obtained under the Act or the Rules and Regulations
and such as may be required under state securities or Blue Sky laws or the
bylaws and rules of the National Association of Securities Dealers, Inc. (the
"NASD") in connection with the purchase and distribution by the Underwriter of
the Shares and the Underwriter's Warrants to be sold by the Company.
(h) Except as described in the Prospectus,
neither the Company nor its subsidiary is in violation, breach or default
(which includes any event that has occurred which, with notice or lapse of time
or both, would constitute a default) of or under, and consummation of the
transactions herein contemplated and the fulfillment of the terms of this
Agreement or the
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<PAGE> 5
terms of any agreement contemplated hereby will not conflict with, or result in
a breach of, any of the terms or provisions of, or constitute a default under,
or result in the creation or imposition of any lien, charge or encumbrance upon
any of the property or assets of the Company or its subsidiary pursuant to the
terms of any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Company or the subsidiary is a party or by
which the Company or the subsidiary may be bound or to which any of the
property or assets of the Company or the subsidiary is subject, nor will such
action result in any violation of the provisions of the articles of
incorporation or any order, rule or regulation applicable to the Company or the
subsidiary of any court or any regulatory authority or other governmental body
having jurisdiction over the Company or the subsidiary.
(i) Subject to the qualifications stated in the
Prospectus, each of the Company and the subsidiary has good and marketable
title to all properties and assets described in the Prospectus as owned by
them, free and clear of all liens, charges, encumbrances or restrictions,
except such as are not materially significant or important in relation to its
business; all of the material leases and subleases under which the Company or
the subsidiary is the lessor or sublessor of properties or assets or under
which the Company or the subsidiary holds properties or assets as lessee or
sublessee as described in the Prospectus are in full force and effect, and,
except as described in the Prospectus, neither the Company nor the subsidiary
is in default in any material respect with respect to any of the terms or
provisions of any of such leases or subleases, and no claim has been asserted
by anyone adverse to rights of the Company or the subsidiary as lessor,
sublessor, lessee or sublessee under any of the leases or subleases mentioned
above, or affecting or questioning the right of the Company or the subsidiary
to continued possession of the leased or subleased premises or assets under any
such lease or sublease, except as described or referred to in the Prospectus;
and each of the Company and the subsidiary owns or leases all such properties
described in the Prospectus as are necessary to its operations as now conducted
and, except as otherwise stated in the Prospectus, as proposed to be conducted
as set forth in the Prospectus.
(j) Arthur Anderson LLP who has given its report
on certain financial statements filed and to be filed with the Commission as a
part of the Registration Statement, which are incorporated in the Prospectus,
are, with respect to the Company, independent public accountants as required by
the Act and the Rules and Regulations.
(k) The consolidated financial statements and
the related notes of the Company, any supplementary financial information, any
related schedules and the pro forma financial statements of the Company set
forth in the Registration Statement and the Prospectus present fairly the
consolidated financial position and results of operations and changes in
stockholder's equity and cash flows of the Company on the basis stated in the
Registration Statement, at the respective dates and for the respective periods
to which they apply. The consolidated financial statements and the related
notes of EDnet, Inc., any supplementary financial information and any related
schedules set forth in the Registration Statement and the Prospectus, present
fairly the consolidated financial position and results of operations and
changes in shareholders' equity and cashflows of EDnet, Inc. on the basis
stated in the Registration Statement, at the respective dates and for the
respective periods to which they apply. Said financial statements and notes,
supplementary financial information, related schedules and
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<PAGE> 6
pro forma financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") applied on a basis which is consistent
during the periods involved. The financial data with respect to the Company set
forth in the Prospectus under the captions "SUMMARY OF CONSOLIDATED FINANCIAL
INFORMATION," "CAPITALIZATION," "SELECTED FINANCIAL DATA" and "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS"
fairly present, on the basis stated in the Prospectus, the information set
forth therein and have been compiled on a basis consistent with that of the
audited financial statements included in the Prospectus. No other financial
statements are required by Form S-1 or otherwise to be included in the
Registration Statement or the Prospectus. The pro forma financial information
included in the Registration Statement has been prepared in accordance with the
applicable requirements of Regulation S-X and the assumptions used in the
preparation of such pro forma information are, in the opinion of the Company,
reasonable. There has been no material adverse change in the condition
(financial or otherwise), business, properties, prospects, net worth or results
of operations of the Company and its subsidiary, taken as a whole, from the
latest information set forth in the Registration Statement or the Prospectus,
except as properly described in the Prospectus; and there is no fact known to
the Company or its subsidiary which could reasonably be expected to have a
material and adverse effect on the future prospects of the Company and its
subsidiary (other than political or economic matter of general applicability or
as properly described in the Prospectus).
(l) Subsequent to the respective dates as of
which information is given in the Registration Statement and Prospectus and
except as described in the Registration Statement, the Company has not paid or
declared any dividends or other distributions of any kind on any class of its
capital stock nor has it incurred any liabilities or obligations, direct or
contingent, not in the ordinary course of business, or entered into any
transaction not in the ordinary course of business, which is material to the
business of the Company, and there has not been any change in the capital stock
of, or any material incurrence of long-term debt by the Company or its
subsidiary or any material issuance of options, warrants or other rights to
purchase the capital stock of the Company or its subsidiary or any material
adverse change or any material development involving, so far as the Company or
its subsidiary can now reasonably foresee, a prospective adverse change in the
condition (financial or otherwise), net worth, results of operations, business,
key personnel or properties of the Company or its subsidiary which would be
material to the business or condition (financial or otherwise) of the Company
and its subsidiary, taken as a whole, and neither the Company nor its
subsidiary has become a party to, and neither the business nor the property of
the Company or its subsidiary has become the subject of, any material
litigation whether or not in the ordinary course of business.
(m) Except as set forth in the Prospectus, there
is not now pending or threatened, any action, suit or proceeding to which the
Company or its subsidiary is a party before or by any court or governmental
agency or body, which might result in any material adverse change in the
condition (financial or otherwise), business, properties, prospects, net worth,
or results of operations of the Company and its subsidiary, taken as a whole,
nor are there any actions, suits or proceedings related to environmental
matters or related to discrimination on the basis of age, sex, religion or
race; and no labor disputes involving the employees of the Company or its
subsidiary exist or are threatened which might be expected to materially
6
<PAGE> 7
adversely affect the condition (financial or otherwise), business, properties,
prospects, net worth or results of operations of the Company and its
subsidiary, taken as a whole.
(n) Except as disclosed in the Prospectus, each
of the Company and its subsidiary has sufficient licenses, permits,
certificates and other governmental authorizations as are required for the
conduct of its business or the ownership of its property as described in the
Prospectus and are in all material respects complying therewith. Neither the
Company nor its subsidiary has received any notice of proceedings relating to
the revocation or modification of any such certificate, authorization or permit
nor, to the knowledge of the Company or its subsidiary, do any of the
activities or business of the Company or its subsidiary cause the Company or
its subsidiary to be in violation of, or cause the Company or its subsidiary to
violate, any law, rule, regulation or order of the United States, any state,
county or locality, or of any agency or body of the United States or of any
state, county or locality, the violation of which would have a material adverse
impact upon the condition (financial or otherwise), business, properties,
prospects, net worth or results of operations of the Company and its
subsidiary, taken as a whole.
(o) Neither the Company nor its subsidiary has
directly or indirectly, at any time (i) made any contributions to any candidate
for political office, or failed to disclose fully any such contribution in
violation of law or (ii) made any payment to any state, federal or foreign
governmental officer or official, or other person charged with similar public
or quasi-public duties, other than payments or contributions required or
allowed by applicable law. The Company's internal accounting controls and
procedures are sufficient to cause the Company to comply in all material
respects with the Foreign Corrupt Practices Act of 1977, as amended.
(p) On the Closing Date (as hereinafter defined)
all transfer or other taxes (including franchise, capital stock or other tax,
other than income taxes, imposed by any jurisdiction), if any, which are
required to be paid in connection with the sale and transfer of the Shares to
the Underwriter hereunder will have been fully paid or provided for by the
Company and all laws imposing such taxes will have been fully complied with in
all material respects.
(q) There is no document or contract of a
character required to be described in the Registration Statement or Prospectus
(or, if the Prospectus is not in existence, the most recent Preliminary
Prospectus) or to be filed as an exhibit to the Registration Statement which is
not described or filed as required.
(r) The Company has not taken nor will take,
directly or indirectly, any action designed to cause or result in, or which has
constituted or which might reasonably be expected to constitute the
stabilization or manipulation of the price of the Shares. The Company has not
distributed and will not distribute any offering material in connection with
the offering and sale of the Shares other than the Preliminary Prospectus and
the Registration Statement, the Prospectus or other materials permitted or
required by the Act.
(s) The Company has not entered into any
agreement pursuant to which any person is entitled, either directly or
indirectly, to compensation from the Company for services as a finder in
connection with the public offering referred to herein.
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<PAGE> 8
(t) There are no holders of shares of Common
Stock or other securities of the Company having rights to register such Common
Stock or other securities by means of the Registration Statement.
(u) The Company has entered into employment
contracts with its principal executive officers, including Randy S. Selman and
_______________, and the description of such employment agreements in the
Prospectus is true, correct and complete in all material respects.
(v) No labor dispute with the employees of the
Company exists or is threatened or imminent that could result in a material
adverse change in the condition (financial or otherwise), business, properties,
prospects, net worth or results of operations of the Company, except as
described in or contemplated by the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus).
(w) The Company owns or possesses, or can
acquire on reasonable terms, all material patents, patent applications,
trademarks, service marks, trade names, licenses, copyrights and proprietary or
other confidential information currently employed by them in connection with
their respective businesses, and the Company has not received any notice of
infringement of or conflict with asserted rights of any third party with
respect to any of the foregoing, which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or funding, would result in a
material adverse change in the condition (financial or otherwise), business,
properties, prospects, net worth or results of operations of the Company and
its subsidiary, taken as a whole, except as described in or contemplated by the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(x) The Company is insured by insurers of
recognized financial responsibility against such losses and risks and in such
amount as the Company believes are prudent and customary in the businesses in
which it is engaged; the Company has not been refused any insurance coverage
sought or applied for; and the Company has no reason to believe that it will
not be able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be necessary
to continue its business at a cost that would not materially and adversely
affect the condition (financial or otherwise), business, properties, prospects,
net worth or results of operations of the Company and its subsidiary, taken as
a whole, except as described in or contemplated by the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus).
(y) The Company will conduct its operations in a
manner that will not subject it to registration as an investment company under
the Investment Company Act of 1940, as amended, and this transaction will not
cause the Company to become an investment company subject to registration under
such Act.
(z) The Company has filed all foreign, federal,
state and local tax returns that are required to be filed or has requested
extensions thereof (except in any case in which the failure so to file would
not have a material adverse effect on the Company and its subsidiary, taken as
a whole) and has paid all taxes required to be paid and any other assessment,
fine or penalty levied, to the extent that any of the foregoing is due and
payable, except for any
8
<PAGE> 9
such assessment, fine or penalty that is currently being contested in good
faith or as described in or contemplated by the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus).
(aa) Any certificate signed by any officer of the
Company and delivered to the Underwriter or to counsel for the Underwriter
shall be deemed a representation and warranty made by the Company to the
Underwriter as to the matters covered thereby and shall be deemed incorporated
herein in its entirety and shall be effective as if such representation and
warranty were made herein.
(bb) The Company owns no shares of stock or any
other equity securities of any corporation or has any equity interest in any
firm, partnership, association or other entity, except as described in or
contemplated by the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus).
(cc) The books, records and accounts and systems
of internal accounting controls of the Company currently comply in all material
respects with the requirements of Section 13(b)(2) of the Securities Exchange
Act of 1934, as amended (the "EXCHANGE ACT"). The Company maintains a system of
internal accounting controls sufficient to provide reasonable assurance that
(1) transactions are executed in accordance with management's general or
specific authorizations; (2) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (3) access to
assets is permitted only in accordance with management's general or specific
authorization; and (4) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(dd) No statement, representation, warranty or
covenant made by the Company in this Agreement or made in any certificate or
document required by this Agreement to be delivered to the Underwriter is or
will be, when made, inaccurate, untrue or incorrect in any material respect,
unless such statement, representation, warranty or covenant is qualified as to
materiality, in which case it is not or will not be, when made, inaccurate,
untrue or incorrect.
(ee) The Shares have been approved for listing on
the Nasdaq Stock Market's National Market under the symbol "VDAT," subject only
to notice of issuance.
(ff) The business, operations and facilities of
each of the Company and its subsidiary have been and are being conducted in
compliance in all material respects with all applicable laws, ordinances,
rules, regulations, licenses, permits, approvals, plans, authorizations or
requirements relating to occupational safety and health, or pollution, or
protection of health or the environment (including, without limitation, those
relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants or hazardous or toxic substances, materials or wastes
into ambient air, surface water, groundwater or land, or relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of chemical substances, pollutants, contaminants or
hazardous or toxic substances, materials or wastes, whether solid, gaseous or
liquid in nature) of any governmental department, commission, board, bureau,
agency or instrumentality of the United States or any state or political
subdivision
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<PAGE> 10
thereof, and all applicable judicial or administrative agency or regulatory
decrees, awards, judgments and orders relating thereto; and neither the Company
nor its subsidiary has received any notice from any governmental
instrumentality or any third party alleging any violation thereof or liability
thereunder (including, without limitation, liability for costs of investigating
or remediating sites containing hazardous substances and/or damages to natural
resources), which violation would have, or could reasonably be expected to
have, a material adverse effect on the condition (financial or otherwise),
business, properties, prospects, net worth or results of operations of the
Company and its subsidiary, taken as a whole. The intended use and occupancy of
each of the facilities owned or operated by the Company or its subsidiary
complies in all material respects with all applicable codes and zoning laws and
regulations and there is no pending or, to the knowledge of the Company or its
subsidiary, threatened condemnation, zoning change, environmental or other
proceeding or action that will in any material respect adversely affect the
size of, use of, improvements on, construction on, or access to such
facilities.
(gg) Each executive officer, director and certain
shareholders of the Company, as listed on SCHEDULE B attached hereto, has
delivered to the Underwriter an agreement (the "LOCK-UP AGREEMENT"), in
substantially the form of ANNEX A, to the effect that he, she or it will not,
for a period of two years after the date hereof, without the prior written
consent of the Underwriter, offer to sell, sell, contract to sell, grant any
option to purchase or otherwise dispose (or announce any offer, sale, grant of
any option to purchase or other disposition) of any shares of Common Stock or
securities convertible into, or exchangeable or exercisable for, shares of
Common Stock, except for bona fide private sales or transfers of Common Stock
to purchasers or transferees provided that such person agrees in writing to be
bound by the terms of the Lock-up Agreement.
(hh) No transaction has occurred between or
among the Company or any of its affiliates, officers or directors or any
affiliate or affiliates of any such officer or director that is required to be
described in and is not described in the registration Statement and the
Prospectus.
(ii) Neither the Company nor any of its
affiliates nor any person acting on the Company's behalf has, directly or
indirectly, at any time within the past six (6) months made, nor will any such
party make within six (6) months of the Closing Date, any offer or sale of any
security or solicitation of any offer to buy any security under circumstances
that would eliminate the availability of the exemption from registration under
Regulation D under the Act nor which would violate the Act.
2. Representations and Warranties of the Selling
Shareholders. Each Selling Shareholder represents and warrants to each
Underwriter that:
(a) Such Selling Shareholder on the Closing Date
will have, valid, marketable title to the Shareholder's Shares to be sold by
such Selling Shareholder, free and clear of any lien, claim, security interest
or other encumbrance, including, without limitation, any restriction on
transfer.
(b) Such Selling Shareholder now has, and on the
Closing Date will have, full legal right, power and authorization, and any
approval required by law, to sell, assign
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<PAGE> 11
transfer and deliver such Shareholder's Shares in the manner provided in this
Agreement, and upon delivery of and payment for such Shareholder's Shares
hereunder, the several Underwriters will acquire valid title to such shares of
Common Stock free and clear of any lien, claim, security interest or other
encumbrance.
(c) This Agreement has and the Custody Agreement
on or before Closing will have been duly authorized, executed and delivered by
or on behalf of such Selling Shareholder and are the valid and binding
agreements of such Selling Shareholder enforceable against such Selling
Shareholder in accordance with their terms, except (a) as such enforceability
may be limited by bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other laws affecting creditors' rights generally, (b)
that the remedy of specific performance and injunctive and other forms of
equitable relief are subject to certain equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought,
and (c) as such enforceability may be subject to limitations on rights to
indemnity or contribution or both by the federal or state securities laws or
the public policies underlying such laws.
(d) Neither the execution and delivery of this
Agreement or the Custody Agreement by or on behalf of such Selling Shareholder
nor the consummation of the transactions herein or therein contemplated by or
on behalf of such Selling Shareholder requires any consent, approval,
authorization or order of, or filing or registration with, any court,
regulatory body, administrative agency or other governmental body, agency or
official (except such as may be required under the Act and the Exchange Act or
such as may be required under state securities or Blue Sky laws governing the
purchase and distribution of the shares of Common Stock or such as has been
obtained) or conflicts or will conflict with or constitutes or will constitute
a breach of, or default under, or violates or will violate, any agreement,
indenture or other instrument to which such Selling Shareholder is a party or
by which such Selling Shareholder is or may be bound or to which any of such
Selling Shareholder's property or assets is subject, or any statute, law, rule,
regulation, ruling, judgment, injunction, order or decree applicable to such
Selling Shareholder or to any property or assets of such Selling Shareholder.
(e) The Registration Statement the Preliminary
Prospectus and the Prospectus, insofar as they relate to such Selling
Shareholder, do not and on the Closing Date will not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading (as
to the Prospectus, in light of the circumstances under which they were made).
(f) Such Selling Shareholder does not have any
knowledge or any reason to believe that the Registration Statement, the
Preliminary Prospectus or the Prospectus (or any amendment or supplement
thereto) contains any untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading (as to the Prospectus, in light of the circumstances
under which they were made).
(g) The representations and warranties of such
Selling Shareholder in the Custody Agreement are, and on the Closing Date will
be, true and correct.
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<PAGE> 12
(h) Such Selling Shareholder has not taken,
directly or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the price of
the Common Stock to facilitate the sale or resale of the Shareholder's Shares,
except for the lock-up arrangements described in the Prospectus.
3. Purchase, Delivery and Sale of the Shares.
(a) Subject to the terms and conditions of this
Agreement, and upon the basis of the representations, warranties and agreements
herein contained, the Company agrees to issue and sell to the Underwriter, and
the Underwriter agrees to buy from the Company and the Selling Shareholders, at
$_______ per share, at the place and time hereinafter specified, 2,000,000
shares of Common Stock (the "FIRM SHARES").
(b) In addition, subject to the terms and
conditions of this Agreement, and upon the basis of the representations,
warranties and agreements herein contained, the Selling Shareholders hereby
grant an option (the "OPTION") to the Underwriter to purchase up to an
additional 300,000 shares of Common Stock (the "OPTION SHARES"), at $______
per share, at the place and time hereinafter specified. The Option hereby
granted will expire 45 days after the date of the Prospectus, and may be
exercised in whole or in part only for the purpose of covering over-allotments
which may be made in connection with the offerings and distribution of the Firm
Shares upon written notice from the Underwriter to the Selling Shareholders
setting forth the amount of Option Shares as to which the Underwriter is
exercising the Option and the time and date of payment for such Option Shares.
Such time and date of delivery for the Option Shares (the "OPTION CLOSING
DATE") shall be determined by the Underwriter, but shall not be, unless
otherwise agreed upon by the Underwriter and the Selling Shareholders, later
than seven full business days after the exercise of the Option, and in no event
prior to the Closing Date (as hereinafter defined). If the Option is exercised
as to all or any portion of the Option Shares, the Selling Shareholders shall
sell all or such portion of the Option Shares to the Underwriter and the
Underwriter shall purchase all or such portion of the Option Shares from the
Selling Shareholders.
(c) Delivery of the Firm Shares against payment
therefor shall take place at the offices of Greenberg Traurig, MetLife
Building, 200 Park Avenue, 15th Floor, New York, New York 10166 (or at such
other place as may be designated by agreement between you and the Company) at
10:00 a.m., New York time, on _______, 1999, or at such later time and date as
you may designate but not later than ten (10) days from the effective date of
the Registration Statement under the Act (the "EFFECTIVE DATE"), such time and
date of payment and delivery for the Firm Shares being herein called the
"CLOSING DATE." In addition, in the event that any or all of the Option Shares
are purchased by the Underwriter, delivery of the Option Shares against payment
therefor shall take place at the above-mentioned offices of Greenberg Traurig
(or at such other place as may be designated by agreement between you and the
Company), at 10:00 a.m., New York time, on the Option Closing Date as specified
in the notice from the Underwriter to the Selling Shareholders.
(d) The Company will make the certificates for
the Firm Shares or the Option Shares, as the case may be, to be purchased by
the Underwriter hereunder available to you
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<PAGE> 13
for inspection at least one (1) full business day prior to the Closing Date or
the Option Closing Date, as the case may be. The certificates shall be in such
names and denominations as you may request at least two (2) full business days
prior to the Closing Date or the Option Closing Date, as the case may be. Time
shall be of the essence, and delivery of the certificates representing the Firm
Shares or the Option Shares, as the case may be, at the time and place
specified in this Agreement is a further condition to the obligations of the
Underwriter.
If so requested by you, definitive
certificates in negotiable form for the Firm Shares or the Option Shares, as
the case may be, to be purchased by the Underwriter hereunder will be delivered
by the Company and the Selling Shareholders to you on the Closing Date or the
Option Closing Date, as the case may be, against payment of the purchase price
therefor, by certified or bank cashier's checks in New York Clearing House
funds, payable to the order of the Company or by wire transfer. However, if
eligible, the Shares may be delivered in book entry form using the Full FAST
facilities of The Depository Trust Company.
It is understood that the Underwriter
proposes to offer the Shares to be purchased hereunder to the public, upon the
terms and conditions set forth in the Registration Statement, after the
Registration Statement becomes effective under the Act.
(e) On the Closing Date, the Company will
further issue and sell to you or, at your direction, to your respective bona
fide officers, for a total purchase price of $160.00, warrants entitling the
holders thereof to purchase an aggregate of 160,000 shares of Common Stock, at
an initial exercise price of $_____ per share (the "UNDERWRITER'S WARRANTS")
for a period of four (4) years, such period to commence twelve (12) months
after the Effective Date. Such Underwriter's Warrants shall contain such other
terms and provisions as may be set forth in an agreement with respect thereto
(the "WARRANT AGREEMENT") executed and delivered by the Company and you
simultaneously with the execution and delivery of this Agreement. As provided
in the Warrant Agreement, you may designate that the Underwriter's Warrants be
issued in varying amounts directly to your respective bona fide officers and
not to you. Such designation will be made by you only if you determine that
such issuances would not violate the Rules of Conduct of the National
Association of Securities Dealers, Inc. relating to the review of corporate
financing arrangements. The holders of the Underwriter's Warrants will be
entitled to the registration rights set forth in Section 10 of the Warrant
Agreement.
4. Covenants of the Company. The Company covenants and
agrees with the Underwriter as to the matters set forth in subparagraphs (a)
through (r) below:
(a) The Company will use its best efforts to
cause the Registration Statement, if not effective under the Act at the time of
execution of this Agreement, and any amendments thereto to become effective
under the Act as promptly as possible. If required, the Company will file the
Prospectus or any Term Sheet that constitutes a part thereof and any amendment
or supplement thereto with the Commission in the manner and within the time
period required by Rules 434 and 424(b) under the Act. During any time when a
prospectus relating to the Shares is required to be delivered under the Act,
the Company (i) will comply in all material respects with all requirements
imposed upon it by the Act and the Rules and Regulations to the extent
necessary to permit the continuance of sales of or dealings in the Shares in
accordance with the provisions hereof and of the Prospectus, as then amended or
supplemented, and (ii)
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<PAGE> 14
except as required by law, will not file with the Commission the Prospectus,
Term Sheet or the amendment referred to in the second sentence of Section 1(a)
hereof, any amendment or supplement to such Prospectus, Term Sheet or any
amendment to the Registration Statement of which the Underwriter previously
have been advised and furnished with a copy for a reasonable period of time
prior to the proposed filing and as to which filing the Underwriter shall not
have given their consent. The Company will prepare and file with the
Commission, in accordance with the Rules and Regulations, promptly upon request
by the Underwriter or counsel for the Underwriter, any amendments to the
Registration Statement or amendments or supplements to the Prospectus that may
be necessary or advisable in connection with the distribution of the Shares by
the Underwriter, and will use its best efforts to cause any such amendment to
the Registration Statement to be declared effective under the Act by the
Commission as promptly as possible. The Company will advise the Underwriter,
promptly after receiving notice thereof, of the time when the Registration
Statement or any amendment thereto has been filed or declared effective under
the Act or the Prospectus or any amendment or supplement thereto has been filed
and will furnish the Underwriter with copies of such documents and provide
evidence satisfactory to the Underwriter of each such filing or effectiveness.
The Company will advise the Underwriter, promptly
after receiving notice or obtaining knowledge thereof, of (i) the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement or any amendment thereto or any stop order or any order
preventing or suspending the use of any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, (ii) the suspension of the
qualification of any jurisdiction, (iii) the institution, threatening or
contemplation of any proceeding for any such purpose or (iv) any request made
by the Commission for amending the Registration Statement, for amending or
supplementing the Prospectus or for additional information. The Company will
use its reasonable best efforts to prevent the issuance of any such stop order
and, if any such order or stop order is issued, to obtain the withdrawal
thereof as promptly as possible.
The Company has caused to be delivered to you copies
of each Preliminary Prospectus, and the Company has consented and hereby
consents to the use of such copies for the purposes permitted by the Act. The
Company authorizes the Underwriter and dealers to use the Prospectus in
connection with the sale of the Shares for such period as, in the opinion of
counsel to the Underwriter, the use thereof is required to comply with the
applicable provisions of the Act and the Rules and Regulations. In case of the
happening, at any time within such period as a Prospectus is required under the
Act to be delivered in connection with sales by an underwriter, of any event of
which the Company has knowledge and which materially affects the Company or the
securities of the Company or which, in the opinion of counsel for the Company
or counsel for the Underwriter, should be set forth in an amendment of the
Registration Statement or a supplement to the Prospectus in order to make the
statements therein not then misleading, in light of the circumstances existing
at the time the Prospectus is required to be delivered to a purchaser of the
Shares, or in case it shall be necessary to amend or supplement the Prospectus
to comply with law or with the Rules and Regulations, the Company will notify
you promptly and forthwith prepare and furnish to you copies of such amended
Prospectus or of such supplement to be attached to the Prospectus, in such
quantities as you may reasonably request, in order that the Prospectus, as so
amended or supplemented, will not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements in
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<PAGE> 15
the Prospectus, in light of the circumstances under which they were made, not
misleading. The preparation and furnishing of any such amendment or supplement
to the Registration Statement or amended Prospectus or supplement to be
attached to the Prospectus shall be without expense to the Underwriter, except
that in case the Underwriter is required, in connection with the sale of the
stock, to deliver a Prospectus ninety (90) days or more after the effective
date of the Registration Statement, the Company will upon request of and at the
expense of the Underwriter, amend or supplement the Registration Statement and
Prospectus and furnish the Underwriter with reasonable quantities of
prospectuses complying with Section 10(a)(3) of the Act.
The Company will comply in all material respects with
the Act, the Rules and Regulations and the Exchange Act and the rules and
regulations thereunder in connection with the offering and issuance of the
Shares.
(b) The Company will use its reasonable best
efforts to qualify to register the Shares for sale under the securities or
"BLUE SKY" laws of such jurisdictions as the Underwriter may reasonably
designate and will make such application and furnish such information as may be
required for that purpose and to comply with such laws, provided the Company
shall not be required to qualify as a foreign corporation or a dealer in
securities or to execute a general consent to service of process in any
jurisdiction in any action other than one arising out of the offering or sale
of the Shares. The Company will, from time to time, prepare and file such
statements and reports as are or may be required to continue such qualification
in effect for so long a period as the Underwriter may reasonably request.
(c) If the sale of the Shares provided for
herein is not consummated for any reason caused by the Company, the Company
shall pay all costs and expenses incident to the performance of the Company's
obligations hereunder including, but not limited to, all of the expenses
itemized in Section 10, including the accountable expenses of the Underwriter,
including legal fees.
(d) For so long as the Company is a reporting
company under either Section 12(b) or (g) or 15(d) of the Exchange Act, the
Company, at its expense, will furnish to its shareholders an annual report
(including financial statements audited by independent public accountants) in
reasonable detail and, at its own expense, will furnish such report to you
during the period ending five (5) years from the date hereof; (i) as soon as
practicable after the end of each fiscal year, a balance sheet of the Company
as at the end of such fiscal year, together with statements of income, changes
in stockholder's equity and cash flows of the Company for such fiscal year, all
in reasonable detail and accompanied by a copy of the certificate or report
thereon of independent accountants; (ii) as soon as they are available, a copy
of all reports (financial or other) mailed to security holders; (iii) as soon
as they are available, a copy of all nonconfidential reports and financial
statements furnished to or filed with the Commission; and (iv) such other
information as you may from time to time reasonably request.
(e) In the event the Company has an active
subsidiary or subsidiaries, such financial statements referred to in subsection
(d) above will be furnished on a consolidated basis to the extent the accounts
of the Company and its subsidiary or subsidiaries are consolidated in reports
finished to its shareholders generally.
15
<PAGE> 16
(f) The Company will deliver to you at or before
the Closing Date two (2) signed copies of the Registration Statement, including
all financial statements and exhibits filed therewith, and of all amendments
thereto, and will deliver to the Underwriter such number of copies of the
Registration Statement, including financial statements but without exhibits, as
the Underwriter may reasonably request. The Company will deliver to or upon the
order of the Underwriter, from time to time until the effective date of the
Registration Statement, as many copies of any Preliminary Prospectus as the
Underwriter may reasonably request. The Company will deliver to the Underwriter
on the effective date of the Registration Statement and thereafter for so long
as a Prospectus is required to be delivered under the Act, from time to time,
as many copies of the Prospectus, in final form, or as thereafter amended or
supplemented, as the Underwriter may from time to time reasonably request.
(g) The Company will make generally available to
its security holders and deliver to you as soon as it is practicable to do so,
but in no event later than ninety (90) days after the and of twelve (12) months
after its current fiscal quarter, an earnings statement (which need not be
audited) covering a period of at least twelve (12) consecutive months beginning
after the effective date of the Registration Statement, which shall satisfy the
requirements of Section 11(a) of the Act.
(h) The Company will apply the net proceeds from
the sale of the Shares for the purposes set forth under "USE OF PROCEEDS" in
the Prospectus, and will file such reports with the Commission with respect to
the sale of the Shares and the application of the proceeds therefrom as may be
required pursuant to Rule 463 under the Act.
(i) The Company will promptly, upon your written
request, prepare and file with the Commission any amendments or supplements to
the Registration Statement, Preliminary Prospectus or Prospectus and take any
other action which, in the reasonable opinion of Greenberg Traurig, counsel to
the Underwriter, may be reasonably necessary or advisable in connection with
the distribution of the Shares, and will use its best efforts to cause the same
to become effective as promptly as possible.
(j) The Company will reserve and keep available
that maximum number of its authorized but unissued shares of Common Stock which
are issuable upon exercise of the Underwriter's Warrants outstanding from time
to time.
(k) Upon completion of this offering, the
Company will make all filings required, including registration under the
Exchange Act, to obtain the listing of its Common Stock on the Nasdaq Stock
Market's National Market, and will effect and will use its best efforts to
maintain such listings for at least five (5) years from the date of this
Agreement.
(l) The Company represents that it has not taken
and agrees that it will not take, directly or indirectly, any action designed
to or which might reasonably be expected to cause or result in the
stabilization or manipulation of the price of the Shares or to facilitate the
sale or resale of the Shares. The Company has not distributed and will not
distribute any offering material in connection with the offering and sale of
the Shares other than the Preliminary Prospectus and the Registration
Statement, the Prospectus or other materially permitted or required by the Act.
16
<PAGE> 17
no proceedings for that or any similar purpose shall have been instituted or
shall be pending or,
(m) On the Closing Date and simultaneously with
the delivery of the Firm Shares, the Company shall execute and deliver to
Cruttenden Roth Incorporated and its designees the Underwriter's Warrants for
an initial exercise price of $_____ per share. The Underwriter's Warrants will
be substantially in the form as filed as an exhibit to the Registration
Statement.
(n) During the one hundred eighty (180) day
period commencing on the Closing Date, the Company will not, without the prior
written consent of the Underwriter, grant options to purchase shares of Common
Stock at a price less than the initial public offering price except as may be
provided by the Company's currently existing stock option plan as described in
the Prospectus. To the extent that such stock option plan allows, the Company
may issue shares upon exercise of the options.
(o) For a period of two (2) years from the
Effective Date, when deemed necessary by the Chief Financial Officer of the
Company, the Company, at its expense, shall cause its regularly engaged
independent certified public accountants to review (but not audit) the
Company's financial statements for each of the first three (3) fiscal quarters
prior to the announcement of quarterly financial information, the filing of the
Company's quarterly report on Form 10-Q and the mailing of quarterly financial
information to shareholders
(p) Pending completion of the offering and for a
period of ninety (90) days thereafter, the Company will not issue press
releases or engage in other publicity without the Underwriters prior consent.
(q) For a period of two years from the Closing
Date, the Company will not, nor will it allow, without the prior written
consent of the Underwriter, the executive officers, directors or certain
holders of any class of equity securities of the Company to, sell, grant any
option or warrant for the sale, or otherwise dispose of, directly or
indirectly, any shares of Common Stock or other equity securities of the
Company (including any shares obtained through the exercise of options granted
under the Company's Stock Option Plan (as such term is defined in the
Prospectus) or any securities convertible into, exercisable for or exchangeable
for shares of Common Stock or other equity securities of the Company, provided,
however, that with respect to any issuances of securities by the Company such
consent may not be unreasonably withheld.
(r) On the Closing Date, the Company will
furnish you with a Lock-up Agreement, substantially in the form of ANNEX A
hereto, from each of the executive officers, directors and certain holders of
any class of equity securities of the Company, as listed on SCHEDULE B attached
hereto, not to sell any shares of Common Stock or other equity securities of
the Company, held by each prior to the Effective Date or obtained through
exercise of options granted under the Stock Option Plan, for a period of
twenty-four (24) months from the Closing Date, without your prior written
consent, which consent may not be unreasonably withheld; provided, however, the
aforementioned restrictions do not apply to private sales or transfers of
Common Stock to purchasers or transferees who agree in writing to be bound by
the terms of such Lock-up Agreement.
5. Agreements of the Selling Shareholders. Each of the
Selling Shareholders agrees with the Underwriters as follows:
17
<PAGE> 18
(a) Such Selling Shareholder will cooperate to
the extent necessary to cause the Registration Statement or any post-effective
amendment thereto to become effective at the earliest possible time.
(b) Such Selling Shareholder will pay all
federal and other taxes, if any, on the transfer or sale of the Shareholders'
Shares being sold by the Selling Shareholder to the Underwriters.
(c) Such Selling Shareholder will do or perform
all things required to be done or performed by the Selling Shareholder prior to
the Closing Date or any Option Closing Date, as the case may be, to satisfy all
conditions precedent to the delivery of the Shareholders' Shares pursuant to
this Agreement.
(d) Such Selling Shareholder has executed or
will execute a "lock-up" letter as provided in Section 4(r) below no later than
the Closing Date.
(e) Except as stated in this Agreement and in
the Preliminary Prospectus and the Prospectus, such Selling Shareholder will
not take, directly or indirectly, any action designed to or that might
reasonably be expected to cause or result in stabilization or manipulation of
the price of the Common Stock or to facilitate the sale or resale of the Common
Stock.
(f) Such Selling Shareholder will advise you
promptly and, if requested by you, will confirm such advice in writing, of any
change in the information relating to such Selling Shareholder that suggests
that any statement made in the Registration Statement or the Prospectus (as
then amended or supplemented, if amended or supplemented) is or may be untrue
in any material respect or that the Registration Statement or Prospectus (as
then amended or supplemented, if amended or supplemented) omits or may omit to
state a material fact or a fact necessary to be stated therein in order to make
the statements therein (in the case of the Prospectus, in light of the
circumstances under which they were made) not misleading in any material
respect, or of the necessity to amend or supplement the Prospectus (as then
amended or supplemented, if amended or supplemented) in order to comply with
the Act or any other law.
6. Conditions of Underwriter's Obligations. The
obligations of the Underwriter to purchase and pay for the Firm Shares, and the
Option Shares if the Option is exercised, which it has agreed to purchase
hereunder, are subject to the accuracy (as of the date hereof and as of the
Closing Date, or with respect to the Option Shares, the Option Closing Date) of
and compliance with the representations and warranties of the Company herein,
to the performance by the Company of its obligations hereunder, and to the
following conditions:
(a) The Registration Statement shall have become
effective, and you shall have received notice thereof not later than 10:00
a.m., New York time, on the day following the date of this Agreement, or at
such later time or on such later date as to which you may agree; on or prior to
the Closing Date, and on the Option Closing Date if the Option is exercised, no
stop order suspending the effectiveness of the Registration Statement shall
have been issued, and
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<PAGE> 19
no proceedings for that or any similar purpose shall have been instituted or
shall be pending or, to your knowledge or to the knowledge of the Company,
shall be contemplated by the Commission; any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of Greenberg Traurig, counsel to the Underwriter; and
no stop order shall be in effect denying or suspending the effectiveness of
such qualification, nor shall any stop order proceedings with respect thereto
be instituted or pending or threatened under such law.
(b) On the Closing Date, and again on the Option
Closing Date if the Option is exercised, you shall have received the opinion,
dated as of the Closing Date, of Atlas, Pearlman, Trop & Borkson, P.A., counsel
for the Company, in form and substance satisfactory to counsel for the
Underwriter, to the effect that:
(i) The Company owns _________ (approximately
______% of all of the outstanding capital stock) of EDnet,
Inc. (the "SUBSIDIARY") and has no other subsidiaries. Each
of the Company and the Subsidiary has been duly organized and
is validly existing as a corporation in good standing under
the laws of the jurisdiction of its incorporation, with full
power and authority (corporate and other) to own its
properties and conduct its business as described in the
Registration Statement and Prospectus, and is duly qualified
or licensed to do business as a foreign corporation and is in
good standing in each other jurisdiction in which the nature
of its business or the character or location of its
properties requires such qualification, except where the
failure to so qualify would not have a material adverse
effect on the condition (financial or otherwise), business,
properties, prospects, net worth or results of operations of
the Company and its subsidiary, taken as a whole.
(ii) To our knowledge, each of the Company and
the Subsidiary has not been required to obtain any
authorization, approval, order, license or permit of or from
any governmental or regulatory official or body (collectively
"PERMITS") to own or lease its material properties and
conduct the material aspects of its business within the
United States as described in the Prospectus. To our
knowledge, neither the Company nor the Subsidiary has
received any notice of a proceeding relating to the
revocation or modification of any Permit which singly or in
aggregate, if the subject of an unfavorable decision, ruling
or finding would materially and adversely affect the
condition, financial or otherwise, of the Company and the
Subsidiary or their operations taken as a whole.
(iii) The authorized equity capitalization of the
Company is as set forth under "CAPITALIZATION" in the
Prospectus; all shares of the Company's outstanding Common
Stock requiring authorization for issuance by the Company's
Board of Directors have been duly authorized, validly issued,
are fully paid and nonassessable and conform to the
description thereof contained in the Prospectus; to our
knowledge, the outstanding shares of Common Stock of the
Company have not been issued in violation of the preemptive
rights of any stockholder, and the shareholders of the
Company do not have any preemptive rights or other rights to
subscribe for or to purchase, nor are there any restrictions
upon the voting or
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<PAGE> 20
transfer of any of the Shares; the Shares conform to the
description thereof contained in the Prospectus; the Shares
have been duly authorized and, when issued and delivered
pursuant to this Agreement, will be duly and validly issued,
fully paid, nonassessable, free of preemptive rights and no
personal liability will attach to the ownership thereof; and
to our knowledge, neither the filing of the Registration
Statement nor the offering or sale of the Shares as
contemplated by the Agreement gives rise to any registration
rights or other rights, other than those which have been
waived or satisfied, relating to the registration of any
shares of Common Stock.
(iv) The Agreement and the Warrant Agreement have
been duly and validly authorized, executed and delivered by
the Company and the Selling Shareholders and, assuming due
execution and delivery of the Agreement and the Warrant
Agreement by the other parties thereto, payment by the
Underwriter for the Shares offered pursuant to the Agreement
and payment by the Underwriter for the Underwriter's
Warrants, are the valid and legally binding obligations of
the Company and the Selling Shareholders, except as
enforceability may be limited by bankruptcy, insolvency or
similar laws affecting the enforcement of creditors' rights
in general and subject, as to enforceability to general
principles of equity (regardless of whether enforcement is
sought in a proceeding, in equity or law); and except that no
opinion is expressed as to the enforceability of the
indemnity provisions contained in Section 8 or the
contribution provisions contained in Section 9 of the
Agreement.
(v) The certificates evidencing the Shares are
in due and proper form; the additional shares issuable upon
exercise of the over-allotment option and the shares of
Common Stock of the Company issuable upon exercise of the
Underwriter's Warrants in accordance with the terms of,
respectively, the Agreement and the Warrant Agreement and at
the prices therein provided for, have been duly authorized
and reserved for issuance upon such exercise, and such
shares, when issued upon exercise in accordance with the
terms of the Agreement and such warrants and at the price
provided for, will be duly and validly issued, fully paid and
nonassessable.
(vi) We do not know of any pending or threatened
legal or governmental proceedings to which the Company or a
subsidiary is a party which, if an unfavorable decision were
rendered, could materially adversely affect the condition
(financial or otherwise), business, properties, net worth or
results of operations of the Company and the Subsidiary,
taken as a whole, or which question the validity of the
Common Stock of the Company, the Shares, the Agreement, the
Warrant Agreement, the Underwriter's Warrants or of any
action taken or to be taken by the Company pursuant to the
Agreement, the Warrant Agreement, or the Underwriter's
Warrants; and to our knowledge there are no governmental
proceedings or regulations required to be described or
referred to in the Registration Statement which are not so
described or referred to.
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<PAGE> 21
(vii) Neither the Company nor the Subsidiary is in
violation of or default under, nor will the execution,
delivery or performance by the Company of its obligations
under the Agreement, the Warrant Agreement or the
Underwriter's Warrants, result in a violation of, or
constitute a default under articles or certificate of
incorporation or by-laws of the Company's or of the
Subsidiary.
(viii) The Registration Statement has become
effective under the Act, and no stop order suspending the
effectiveness of the Registration Statement is in effect, and
no proceedings for that purpose have been instituted or are
pending before, or to our knowledge threatened by, the
Commission; the Registration Statement and the Prospectus
(except for the financial statements and other financial data
contained therein, or omitted therefrom, as to which such
counsel need express no opinion) comply as to form in all
material respects with the applicable requirements of the Act
and the Rules and Regulations.
(ix) The descriptions in the Registration
Statement and the Prospectus, and any amendment or supplement
thereto, of contracts and other documents are accurate in all
material respects and fairly present the information required
to be shown; and we do not know of any contract or document
to be summarized or described therein or to be filed as
exhibits thereto which are not so summarized, described or
filed.
(x) No authorization, approval, consent, or
license of any governmental or regulatory authority or agency
is necessary in connection with the authorization, issuance,
transfer, sale or delivery of the Shares by the Company, in
connection with the execution, delivery and performance of
this Agreement or the Warrant Agreement by the Company, or
the issuance of the Underwriter's Warrants or the Common
Stock underlying the Underwriter's Warrants, other than
registrations or qualifications of such stock under
applicable state or foreign securities or "BLUE SKY" laws and
registration under the Act.
(xi) We have reviewed the statements in the
Registration Statement under the captions "BUSINESS,"
"MANAGEMENT," "PRINCIPAL SHAREHOLDERS," "CERTAIN
TRANSACTIONS," "DESCRIPTION OF SECURITIES" and "SHARES
ELIGIBLE FOR FUTURE SALE" and, insofar as they refer to
descriptions of agreements, statements of law, descriptions
of statutes, licenses, rules or regulations or legal
conclusions, such statements are correct in all material
respects.
Such counsel shall also state that such
counsel has participated in the preparation of the Registration Statement and
the Prospectus, and nothing has come to the attention of such counsel to cause
such Counsel to have reason to believe that the Registration Statement or any
amendment thereto at the time it became effective under the Act contained any
untrue statement of a material fact required to be stated therein or omitted to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus or any supplement
thereto contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading (except, in the
case of both the
21
<PAGE> 22
Registration Statement and any amendment thereto and the Prospectus and any
supplement thereto, for the financial statements, notes thereto and other
financial information and statistical data contained therein, as to which such
counsel need express no opinion).
Such opinion shall also cover such matters
incident to the transactions contemplated hereby as the Underwriter or counsel
for the Underwriter shall reasonably request. In rendering such opinion, such
counsel may rely upon certificates of any officer of the Company or public
officials as to matters of fact; and may rely as to all matters of law other
than the law of the United States or of the State of Florida upon opinions of
counsel satisfactory to you (e.g., local counsel shall provide a satisfactory
opinion for matters of Texas law), in which case the opinion shall state that
they have no reason to believe that you and they are not entitled to so rely.
(c) All corporate proceedings and other legal
matters relating to this Agreement, the Registration Statement, the Prospectus
and other related matters shall be satisfactory to or approved by Greenberg
Traurig, counsel to the Underwriter, and you shall have received from such
counsel a signed opinion, dated as of the Closing Date (or in the event of the
Option Closing, the Option Closing Date), with respect to the validity of the
issuance of the Firm Shares (or in the event of the Option Closing, the Option
Shares), the form of the Registration Statement and Prospectus (other than the
financial statements, notes thereto and other financial data contained
therein), the execution of this Agreement and other related matters as you may
reasonably require. The Company shall have furnished to counsel for the
Underwriter such documents as they may reasonably request for the purpose of
enabling them to render such opinion.
(d) You shall have received a letter on and as
of the Effective Date of the Registration Statement and again on and as of the
Closing Date (and again on and as of the Option Closing Date, if the Option is
exercised) from Arthur Anderson LLP, independent public accountants for the
Company, substantially in the form approved by you.
(e) At the Closing Date or, in the event the
Option is exercised, at the Option Closing Date, (i) the representations and
warranties of the Company contained in this Agreement shall be true and correct
with the same effect as if made on and as of the Closing Date or the Option
Closing Date, as the case may be, and the Company shall have performed all of
its obligations hereunder and satisfied all the conditions on its part to be
satisfied at or prior to such Closing Date or such Option Closing Date, as the
case may be; (ii) the Registration Statement and the Prospectus and any
amendments or supplements thereto shall contain all statements which are
required to be stated therein in accordance with the Act and the Rules and
Regulations and in all material respects conform to the requirements thereof,
and neither the Registration Statement nor the Prospectus nor any amendment or
supplement thereto shall contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading; (iii) there shall have been, since
the respective dates as of which information is given, no material adverse
change in the condition (financial or otherwise), business, properties,
prospects, net worth, results of operations, capital stock, long-term or
short-term debt or general affairs of the Company and its subsidiary, taken as
a whole, from that set forth in the Registration Statement and the Prospectus,
except changes which the Registration Statement and Prospectus indicate might
occur after the effective date of
22
<PAGE> 23
the Registration Statement, and neither the Company nor its subsidiary shall
have incurred any material liabilities or agreement not in the ordinary course
of business other than as referred to in the Registration Statement and
Prospectus; (iv) except as set forth in the Prospectus, no action, suit or
proceeding at law or in equity shall be pending or threatened against the
Company or its subsidiary which would be required to be set forth in the
Registration Statement, and no proceedings shall be pending or threatened
against the Company or its subsidiary before or by any commission, board or
administrative agency in the United States or elsewhere, wherein an unfavorable
decision, ruling or finding would materially adversely affect the condition
(financial or otherwise), business, properties, prospects, net worth or results
of operations of the Company and its subsidiary, taken as a whole; and (v) you
shall receive at the Closing Date or the Option Closing Date, as the case may
be, a certificate signed by each of the Chairman of the Board or the President
and the principal financial or accounting officer of the Company, dated as of
the Closing Date or the Option Closing Date, as the case may be, evidencing
compliance with the provisions of this subsection (e).
(f) If any of the conditions herein provided for
in this Section shall not have been fulfilled as of the date indicated, this
Agreement and all obligations of the Underwriter under this Agreement may be
canceled at, or at any time prior to, the Closing Date by the Underwriter by
notifying the Company of such cancellation in writing or by telegram at or
prior to the Closing Date. Any such cancellation shall be without liability of
the Underwriter to the Company.
(g) In the event the Option is exercised, if any
of the conditions herein provided for in this Section, with respect to the
Option Closing, shall not have been fulfilled as of the date indicated, all
obligations of the Underwriter under this Agreement with respect to such Option
Closing may be canceled at, or at any time prior to, the Option Closing Date by
the Underwriter by notifying the Company of such cancellation in writing or by
telegram at or prior to the Option Closing Date. Any such cancellation shall be
without liability of the Underwriter to the Company.
7. Conditions of the Company's Obligations. The
obligation of the Company to sell and deliver the Firm Shares, and the Option
Shares if the Option is exercised, is subject to the following conditions:
(a) The Registration Statement shall have become
effective under the Act not later than 10:00 a.m., New York time, on the day
following the date of this Agreement, or on such later date as the Company and
the Underwriter may agree to in writing.
(b) At the Closing Date, and on the Option
Closing Date if the Option is exercised, no stop orders suspending the
effectiveness under the Act of the Registration Statement shall have been
issued under the Act or any proceedings therefor initiated or threatened by the
Commission.
(c) The Company shall have received payment for
the Securities from the Underwriter.
8. Indemnification.
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<PAGE> 24
(a) The Company and each of [SELLING
SHAREHOLDERS], jointly and severally agree to indemnify and hold harmless the
Underwriter and each person, if any, who controls the Underwriter within the
meaning of the Act, the Underwriter's counsel and the Company's counsel against
any losses, claims, damages or liabilities, joint or several (which shall, for
all purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all attorneys' fees), to which the
Underwriter, any controlling person, the Underwriter's counsel or the Company's
counsel may become subject, under the Act or otherwise, insofar, as such
losses, claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of
any material fact contained in (i) the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto; (ii) any
"Blue Sky" application or other document executed by the Company specifically
for the purpose or based upon written information furnished by the Company
filed in any state or other jurisdiction in order to qualify any or all of the
Shares, under the securities laws thereof (any such application, document or
information being hereinafter called a "BLUE SKY APPLICATION"), or arise out of
or are based upon the omission or alleged omission to state in the Registration
Statement, any Preliminary Prospectus, Prospectus, or any amendment or
supplement thereto, or in any Blue Sky Application, a material fact required to
be stated therein or necessary to make the statements therein not misleading;
provided, however, that the Company and each of [SELLING SHAREHOLDERS] will not
be liable in any such case to the extent, but only to the extent, that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with written or oral information furnished to
the Company by or on behalf of the Underwriter or oral misrepresentations or
omissions in connection therewith specifically for use in the preparation of
the Registration Statement or any such amendment or supplement thereof or any
such Blue Sky Application or any such Preliminary Prospectus or the Prospectus
of any such amendment or supplement thereto. The Company shall not be obligated
to indemnify the Underwriter for a violation of state securities or "Blue Sky"
laws for liability occasioned by reason of such Underwriter's (or its agent's)
failure to have been registered as a broker-dealer (or agent) or the failure of
the securities to have been registered or qualified in a jurisdiction where
such Underwriter (or its agent) is determined to have sold such security. This
indemnity will be in addition to any liability which the Company may otherwise
have.
(b) The Underwriter will indemnify and hold
hardness the Company, each of the Company's directors, each nominee (if any)
for director named in the Prospectus, each of its officers who have signed the
Registration Statement, each person, if any, who controls the Company within
the meaning of the Act, the Underwriter's counsel and the Company's counsel
against any losses, claims, damages or liabilities (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of
defense and investigation and all attorneys' fees) to which the Company, any
such director, nominee, officer or controlling person, the Underwriter's
counsel or the Company's counsel may become subject under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto,
or arise out of or are based upon the omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each
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<PAGE> 25
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, in reliance upon and in conformity with
written information furnished to the Company by you specifically for use in the
preparation thereof. The Underwriter shall indemnify the Company for any
violation of state securities or "Blue Sky" laws for liability occasioned by
reason of such Underwriter's (or its agent's) failure to have been registered
as a broker-dealer (or agent) or the failure of the securities to have been
registered or qualified in a jurisdiction which such Underwriter (or agent) is
determined to have sold such security. This indemnity will be in addition to
any liability which the Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified
party under this Section of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made against the
indemnifying party under this Section, notify in writing the indemnifying party
of the commencement thereof, but the omission so to notify the indemnifying
party will not relieve it from any liability which it may have to any
indemnified party otherwise than under this Section. In case any such action is
brought against any indemnified party, and it notifies the indemnifying party
of the commencement thereof, the indemnifying party will be entitled to
participate in, and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, subject
to the provisions herein stated, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than the
reasonable costs of investigation. The indemnified party shall have the right
to employ separate counsel in any such action and to participate in the defense
thereof, but the fees and expenses of such counsel shall not be at the expense
of the indemnifying party if the indemnifying party has assumed the defense of
the action with counsel reasonably satisfactory to the indemnified party;
provided that if the indemnified party is the Underwriter or a person who
controls the Underwriter within the meaning of the Act, the fees and expenses
of such counsel shall be at the expense of the indemnifying party if (i) the
employment of such counsel has been specifically authorized in writing by the
indemnifying party or (ii) the named parties to any such action (including any
impleaded parties) include both the Underwriter or such controlling person and
the indemnifying party and, the Underwriter reasonably determines that it is
advisable for the Underwriter or controlling persons to be represented by
separate counsel (in which case the indemnifying party shall not have the right
to assume the defense of such action on behalf of the Underwriter or such
controlling person, it being understood, however, that the indemnifying party
shall not, in connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the reasonable fees and
expenses of more than one separate firm of attorneys for the Underwriter and
controlling persons, which firm shall be designated in writing by you). No
settlement of any action against an indemnified party shall be made without the
consent of the indemnifying party, which shall not be unreasonably withheld in
light of all factors of importance to such indemnified party.
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<PAGE> 26
(d) If the Closing occurs, the Company will not
have liability to the Underwriter (for indemnification or otherwise) with
respect to any representation or warranty unless on or before the third
anniversary of the date hereof the Underwriter notifies the Company of a claim
of breach of a representation or warranty.
9. Contribution. In order to provide for just and
equitable contribution under the Act in any case in which (i) the Underwriter
makes claim for indemnification pursuant to Section 8 hereof but it is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of
the last right of appeal) that such indemnification may not be enforced in such
case, notwithstanding the fact that the express provisions of Section 8 provide
for indemnification in such case or (ii) contribution under the Act may be
required on the part of the Underwriter or the Company in circumstances for
which indemnification is provided for pursuant to Section 8, then the Company,
in the aggregate, and the Underwriter shall contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (which shall for
all purposes of this Agreement include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys' fees) in
either such case (after contribution from others) in such proportions that the
Underwriter is responsible in the aggregate for that portion of such losses,
claims, damages or liabilities represented by the percentage that the
underwriting discount per share appearing on the cover page of the Prospectus
bears to the public offering price appearing thereon, and the Company shall be
responsible for the remaining portion; provided, however, that, if such
allocation is not permitted by applicable law, then the relative fault of the
Company and the Underwriter, in the aggregate, in connection with the
statements or omissions which resulted in such damages and other relevant
equitable considerations shall also be considered. The relative fault shall be
determined by reference to, among other things, whether in the case of an
untrue statement or a material fact or the omission to state a material fact,
such statement or omission relates to information supplied by the Company or
the Underwriter, and the parties' relevant intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. The Company and the Underwriter agree that it would not be just and
equitable if the respective obligations of the Company and the Underwriter to
contribute pursuant to this Section 9 were to be determined by pro rata or per
capital allocation of the aggregate damages (even if the Underwriter and its
controlling persons in the aggregate were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in the first sentence of this Section 9.
No person guilty of a fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person who
is not guilty of such fraudulent misrepresentation. For the purposes of this
paragraph, each officer, director, or other person who controls the Underwriter
within the meaning of Section 15 of the Act shall have the same rights to
contribution as such Underwriter, and each officer, director, or other person.
If the full amount of the contribution specified in this paragraph is not
permitted by law, then the Underwriter and each person who controls the
Underwriter shall be entitled to contribution from the Company to the full
extent permitted by law. The foregoing contribution agreement shall in no way
affect the contribution liabilities of any persons having liability under
Section 11 of the Act other than the Company and the Underwriter. No
contribution shall be requested with regard to the settlement of any matter
from any party who did not consent to the settlement; provided, however, that
such consent shall not be unreasonably withheld in light of all factors of
importance to such party.
26
<PAGE> 27
10. Costs and Expenses.
(a) Whether or not this Agreement becomes
effective or the sale of the Shares to the Underwriter is consummated, the
Company will pay all costs and expenses incident to the performance of this
Agreement including, but not limited to, the fees and expenses of counsel to
the Company and of the Company's accountants; the costs and expenses incident
to the preparation, printing, filing and distribution under the Act of the
Registration Statement (including the financial statements therein and all
amendments and exhibits thereto), Preliminary Prospectus and Prospectus, as
amended or supplemented; all expenses, including fees, disbursements and other
charges of counsel to the Underwriter, in connection with any filing required
by the NASD relating to the offering of the Shares contemplated hereby; all
expenses, including fees, disbursements and other charges of counsel to the
Underwriter, in connection with the qualification of the Shares under the state
securities or blue sky laws which the Underwriter shall designate; the cost of
printing and furnishing to the Underwriter copies of the Registration
Statement, each Preliminary Prospectus and the Prospectus; the cost of printing
the certificates representing the Shares; and the costs and expenses incident
to the preparation and printing of bound volumes of the offering documents for
the Underwriters and their Counsel. The Company shall pay any and all taxes
(including any transfer, franchise, capital stock or other tax imposed by any
jurisdiction) on sales by the Company to the Underwriter hereunder. The Company
will also pay all costs and expenses incident to the furnishing of any amended
Prospectus or of any supplement to be attached to the Prospectus as called for
in Section 5(a) of this Agreement except as otherwise set forth in said
Section.
(b) In addition to the foregoing expenses the
Company shall at the Closing Date pay to Cruttenden Roth Incorporated a
non-accountable expense allowance equal to 2% of the gross proceeds of the sale
of the Shares. In the event the transactions contemplated hereby are not
consummated by reason of any action by the Underwriter (except if such
prevention is based upon a breach by the Company of any covenant,
representation or warranty contained herein or because any other condition to
the Underwriter's obligations hereunder required to be fulfilled by the Company
is not fulfilled), the Company shall not be liable to the Underwriter for any
out-of-pocket accountable expenses except that the Underwriter may retain all
monies paid to it prior to the termination of the underwriting, but only to the
extent of out-of-pocket accountable expenses incurred by the Underwriter, and
the Underwriter shall return to the Company all monies received in excess of
its out-of-pocket accountable expenses. In the event the transactions
contemplated hereby are not consummated by reason of any action of the Company
or because of a breach by the Company of any covenant, representation or
warranty contained herein, the Company shall be liable for the out-of-pocket
accountable expenses incurred by the Underwriter, including attorneys' fees,
less a credit of any amounts previously paid by the Company to the Underwriter,
and the Underwriter shall return to the Company all monies received in excess
of its out-of-pocket accountable expenses.
(c) No person is entitled either directly or
indirectly to compensation from the Company, from the Underwriter or from any
other person for services as a finder in connection with the proposed offering,
and the Company agrees to indemnify and hold harmless the Underwriter against
any losses, claims, damages or liabilities, joint or several, which shall, for
all purposes of this Agreement, include, but not be limited to, all costs of
defense and
27
<PAGE> 28
investigation and all attorneys' fees, to which the Company, the Underwriter or
person may become subject insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon the
claim of any person (other than an employee of the party claiming indemnity) or
entity that he or it is entitled to a finder's fee in connection with the
proposed offering by reason of such person's or entity's influence or prior
contact with the indemnifying party.
11. Effective Date. This Agreement shall become effective
upon its execution, except that you may, at your option, delay its
effectiveness until 11:00 a.m., New York time, on the first full business day
following the Effective Date of the Registration Statement, or at such earlier
time after the Effective Date of the Registration Statement as you in your
discretion shall first commence the initial public offering by the Underwriter
of any of the Shares. The time of the initial public offering shall mean the
time of release by you of the first newspaper advertisement with respect to the
Shares, or the time when the Shares are first generally offered by you to
dealers by letter or telegram, whichever shall first occur. This Agreement may
be terminated by you at any time before it becomes effective as provided above,
except that Sections 4(c), 8, 9, 10, 14, 15, 16 and 17 hereof shall remain in
effect notwithstanding such termination.
12. Termination.
(a) This Agreement, except for Sections 4(c), 8,
9, 10, 14, 15, 16 and 17 hereof, may be terminated by you at any time prior to
the Closing Date if in your judgment it is impracticable to offer for sale or
to enforce contracts made by the Underwriter for the resale of the Shares
agreed to be purchased hereunder by reason of (i) the Company having sustained
a material loss, whether or not insured, by reason of fire, earthquake, flood,
accident or other calamity, or from any labor dispute or court or government
action, order or decree; (ii) trading in securities on the New York Stock
Exchange, the American Stock Exchange, and/or the Nasdaq Stock Market's
National Market having been generally suspended or limited; (iii) material
governmental restrictions having been imposed on trading in securities
generally (not in force and effect on the date hereof); (iv) a banking
moratorium having been declared by federal or New York State authorities; (v)
an outbreak of major international hostilities or other national or
international calamity having occurred; (vi) the passage by the Congress of the
United States, or by any state legislative body of similar impact, of any act
or measure, or the adoption of any orders, rules or regulations by any
governmental body or any authoritative accounting institute or board, or any
governmental executive, which is reasonably believed likely by the Underwriter
to have a material impact on the condition (financial or otherwise), business,
properties, prospects or financial statements of the Company or on the market
for the securities offered hereby; (vii) any material adverse change in the
financial or securities markets in the United States, particularly in the
over-the-counter market, having occurred since the date of this Agreement, or
(viii) any material adverse change having occurred, since the respective dates
of which information is given in the Registration Statement and Prospectus, in
the condition (financial or otherwise), business, properties, prospects, net
worth or results of operations of the Company, not arising in the ordinary
course of business.
28
<PAGE> 29
(b) If you elect to prevent this Agreement from
becoming effective or to terminate this Agreement as provided in this Section
12 or in Section 11, the Company shall be promptly notified by you, by
telephone or telegram, confirmed by letter.
13. Warrants. At or before the Closing Date, the Company
will sell to Cruttenden Roth Incorporated the Underwriters' Warrants to
purchase an aggregate of 200,000 shares of the Common Stock of the Company for
a consideration of $200.00 upon the terms and conditions set forth in the
Warrant Agreement. In the event of conflict in the terms of this Agreement and
the Underwriter's Warrants, the language of the Underwriter's Warrants shall
control.
14. Representations, Warranties and Agreements to Survive
Delivery. Except as may be limited by Section 8(d), the respective indemnities,
agreements, representations, warranties and other statements of the Company and
the Underwriter set forth in or made pursuant to this Agreement will remain in
full force and effect, regardless of any investigation made by or on behalf of
the Underwriter, the Company or any of its officers or directors or any
controlling person and will survive delivery of and payment for the Shares and
the termination of this Agreement.
15. Notices. Any communications specifically required
hereunder to be in writing, if sent to the Underwriter, will be mailed,
delivered or telegraphed and confirmed to them at Cruttenden Roth Incorporated,
24 Corporate Plaza, Newport Beach, California 92660, Attention: Mr. Shelly
Singhal, with a copy sent to Greenberg Traurig, MetLife Building, 200 Park
Avenue, 15th Floor, New York, New York 10166, Attention: Stephen Weiss, Esq.,
or if sent to the Company, will be mailed, delivered or telegraphed and
confirmed to it at Visual Data Corporation, 1291 SW 29th Avenue, Pompano Beach,
Florida 33069, Attention: Randy S. Selman, CEO & President, with a copy to
Atlas, Pearlman, Trop & Borkson, P.A., 200 East Las Olas Blvd., Suite 1900,
Fort Lauderdale, Florida 33301, Attention: Joel D. Mayersohn, Esq.
16. Parties in Interest. The Agreement herein set forth
is made solely for the benefit of the Underwriter, the Company and any person
controlling the Company or the Underwriter, and the directors of the Company,
nominees for directors (if any) named in the Prospectus, its officers who have
signed the Registration Statement, and their respective executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. The term "SUCCESSORS AND
ASSIGNS" shall not include any purchaser, as such purchaser, from the
Underwriter of the Shares.
17. Applicable Law. THIS AGREEMENT WILL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA
APPLICABLE TO AGREEMENTS MADE AND TO BE ENTIRELY PERFORMED WITHIN CALIFORNIA.
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return this agreement, whereupon it will become
a binding agreement among the Company and the Underwriter in accordance with
its terms.
29
<PAGE> 30
Very truly yours,
VISUAL DATA CORPORATION
By:
----------------------------
Randy S. Selman
CEO & President
The foregoing Underwriting Agreement is hereby confirmed and
accepted as of the date first above written.
CRUTTENDEN ROTH INCORPORATED
By:
----------------------------
Name:
Title:
30
<PAGE> 31
ANNEX A
FORM OF LOCK-UP
Cruttenden Roth Incorporated
24 Corporate Plaza
Newport Beach, CA 92660
Ladies and Gentlemen:
Reference is made to the Underwriting Agreement, dated
_______, 1999 (the "UNDERWRITING AGREEMENT"), between Visual Data Corporation,
a Florida corporation (the "COMPANY"), and Cruttenden Roth Incorporated (the
"UNDERWRITER"). Capitalized terms used herein and not defined herein shall have
the same meanings ascribed to them in the Underwriting Agreement.
1. In consideration of the Underwriting Agreement, the
undersigned hereby agrees not to, without the prior written consent of the
Underwriter and except as set forth in Section 2, offer, sell or otherwise
dispose of any shares of the Company's common stock, par value $.0001 per share
(the "COMMON STOCK"), or any securities convertible into or exercisable or
exchangeable for, or any rights to purchase or acquires Common Stock owned by
the Undersigned for a period of twenty-four (24) months after the date of the
Underwriting Agreement.
2. The restrictions set forth in Section 1 shall not
apply to private sales or transfers of Common Stock to purchasers or
transferees who agree in writing to be bound by the terms set forth herein.
3. The undersigned hereby waives all registration rights
to which the undersigned may be entitled prior to the expiration of such
twenty-four (24) month period.
Dated: _________, 1999
Very truly yours,
--------------------------------
Name:
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<PAGE> 32
SCHEDULE A
Selling Shareholders
32
<PAGE> 33
SCHEDULE B
Lock-Up Parties
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33
<PAGE> 1
Exhibit - 4(E)
- --------------------------------------------------------------------------------
WARRANT AGREEMENT
By and Among
VISUAL DATA CORPORATION,
CRUTTENDEN ROTH INCORPORATED
and
H.C. WAINWRIGHT & CO., INC.
Dated as of _____________, 1999
- --------------------------------------------------------------------------------
<PAGE> 2
WARRANT AGREEMENT
WARRANT AGREEMENT, dated as of ____________________, 1999, by and among
VISUAL DATA CORPORATION, a Florida corporation (the "Company"), CRUTTENDEN ROTH
INCORPORATED and H.C. WAINWRIGHT & CO., INC. (collectively, the "Underwriter").
The Company proposes to issue to the Underwriter warrants as
hereinafter described (the "Underwriter Warrants") to purchase up to an
aggregate of 160,000 shares, subject to adjustment as provided in Section 8
hereof (such shares, as adjusted, being hereinafter referred to as the "Shares")
of the Company's common stock, par value $.0001 per share (the "Common Shares"),
each Underwriter Warrant entitling the holder thereof to purchase one Common
Share. All capitalized terms used herein and not otherwise defined herein shall
have the same meanings as in that certain underwriting agreement, of even date
herewith, by and between the Company and the Underwriter (the "Underwriting
Agreement"). In this Agreement, the singular includes the plural and the plural
includes the singular.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth and for other good and valuable consideration, the
parties hereto agree as follows:
1. Issuance of Warrants; Form of Warrant. The Company will issue,
sell and deliver the Underwriter Warrants to the Underwriter or its bona fide
officers for an aggregate price of $250.00. The form of the Underwriter Warrants
and the form of election to purchase Shares to be attached thereto shall be
substantially as set forth on Exhibit A attached hereto. The Underwriter
Warrants shall be executed on behalf of the Company by the manual or facsimile
signature of the present or any future Chief Executive Officer, President or any
Vice President of the Company, under its corporate seal, affixed or in
facsimile, and attested by the manual or facsimile signature of the present or
any future Secretary or Assistant Secretary of the Company.
2. Registration. The Underwriter Warrants shall be numbered and
shall be registered in an Underwriter Warrant register (the "Underwriter Warrant
Register"). The Company shall be entitled to treat the registered holder of any
Underwriter Warrant on the Underwriter Warrant Register (the "Holder") as the
owner in fact thereof for all purposes and shall not be bound to recognize any
equitable or other claim to or interest in such Underwriter Warrant on the part
of any other person, and shall not be liable for any registration of transfer of
Underwriter Warrants which are registered or are to be registered in the name of
a fiduciary or the nominee of a fiduciary unless made with the actual knowledge
that a fiduciary or nominee is committing a breach of trust in requesting such
registration of transfer, or with such knowledge of such facts that its
participation therein amounts to bad faith. The Underwriter Warrants shall be
registered initially in the name of "Cruttenden Roth Incorporated" in such
denominations as the Underwriter may request in writing to the Company;
provided, however, that the Underwriter may designate that all or a portion of
the Underwriter Warrants be issued in varying amounts directly to its bona fide
officers, and not to the Underwriter. Such designation will only be made by the
Underwriter if it determines that such issuances would not violate the
interpretation of the Board of Governors of the National Association of
Securities Dealers, Inc. (the "NASD") relating to the review of corporate
financing arrangements.
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<PAGE> 3
3. Transfer of Warrants. The Underwriter Warrants will not be
sold, transferred, assigned or hypothecated, in part or in whole the (other than
by will or pursuant to the laws of descent and distribution), except to officers
of the Underwriter and thereafter only upon delivery thereof duly endorsed by
the Holder or by his duly authorized attorney or representative, or accompanied
by proper evidence of succession, assignment or authority to transfer. In all
cases of transfer by an attorney, the original power of attorney, duly approved,
or an official copy thereof, duly certified, shall be deposited with the
Company. In case of transfer by executors, administrators, guardians or other
legal representatives, duly authenticated evidence of their authority shall be
produced, and may be required to be deposited with the Company in its
discretion. Upon any registration of transfer, the Company shall deliver a new
Underwriter Warrant or Underwriter Warrants to the persons entitled thereto. The
Underwriter Warrants may be exchanged at the option of the Holder thereof for
another Underwriter Warrant, or other Underwriter Warrants, of different
denominations, of like tenor and representing in the aggregate the right to
purchase a like number of Common Shares upon surrender to the Company or its
duly authorized agent. Notwithstanding the foregoing, the Company shall have no
obligation to cause Underwriter Warrants to be transferred on its books to any
person if such transfer would violate the Securities Act of 1933, as amended
(the "Act").
4. Term of Warrants, Exercise of Warrants. Each Underwriter
Warrant entitles the registered owner thereof to purchase one Share at a
purchase price of $_______ per Share (the "Exercise Price") at any time from the
first anniversary of the effective date of the Registration Statement until 5:00
p.m., New York City time, on _____________, 2004) (the "Warrant Expiration
Date"). Notwithstanding the foregoing, if at 5:00 p.m. New York time on the
Warrant Expiration Date, any Holder or Holders of the Underwriter Warrants have
not exercised their Underwriter Warrants and the "current market price" (as such
term is defined in Section 8(d) below) for the Common Shares on the Warrant
Expiration Date is greater than the Exercise Price, then each such unexercised
Underwriter Warrant shall automatically be converted into a number of Common
Shares equal to: the number of Common Shares then issuable upon exercise of an
Underwriter Warrant, multiplied by a fraction, the numerator of which is the
difference between (A) the "current market price" for Common Shares on the
Warrant Expiration Date and (B) the Exercise Price, and the denominator of which
is the "current market price" on the Warrant Expiration Date. Prior to the
Warrant Expiration Date, the Company will not take any action which would
terminate the Underwriter Warrants. The Exercise Price and the Shares issuable
upon exercise of the Underwriter Warrants are subject to adjustment upon the
occurrence of certain events pursuant to the provisions of Section 8 of this
Agreement. Subject to the provisions of this Agreement, each Holder shall have
the right, which may be exercised as set forth in such Underwriter Warrants, to
purchase from the Company (and the Company shall issue and sell to such Holder)
the number of fully paid and nonassessable Common Shares specified in such
Underwriter Warrants, upon surrender to the Company, or its duly authorized
agent, of such Underwriter Warrants with the form of election to purchase
attached thereto duly completed and signed, with signatures guaranteed by a
member firm of a national securities exchange, a commercial bank or trust
company located in the United States or a member of the NASD and upon payment to
the Company of the Exercise Price, as adjusted in accordance with the provisions
of Section 8 of this Agreement, for the number of Shares in respect of which
such Underwriter Warrants are then exercised.
2
<PAGE> 4
Payment of such Exercise Price may be made at the Holder's election (i)
by certified or official bank check, (ii) in the event that the Holder holds
Common Shares of the Company and such Common Shares are listed on a domestic
stock exchange or quoted in the domestic over-the-counter market, by
transferring to the Company an amount of such Common Shares which, when
multiplied by, the current market price of the Common Shares at the time of
exercise of such Underwriter Warrant, equals the aggregate amount of the
consideration payable upon such exercise, (iii) by surrendering to the Company
the right to receive a portion of the number of Shares with respect to which
such Underwriter Warrant is then being exercised equal to the product obtained
by multiplying such number of Shares by a fraction, the numerator of which is
the Exercise Price in effect on the date of such exercise and the denominator of
which is the current market price of the Common Shares in effect on such date,
or (iv) by a combination of the foregoing methods of payment selected by the
Holder. For purposes of this paragraph, the current market price of the Common
Shares shall be calculated either (a) on the date which the form of election to
purchase attached hereto is deemed to have been sent to the Company pursuant to
Section 12 hereof ("Notice Date") or (b) as the average of the last reported
sale price for each of the five trading days preceding the Notice Date,
whichever of (a) or (b) is greater. In any case where the consideration payable
upon such exercise is being paid in whole or in part pursuant to the provisions
of clause (ii) or clause (iii) of the preceding sentence, such exercise shall be
accompanied by written notice from the Holder specifying the manner of payment
thereof, and in the case of clause (ii), stating the amount of Common Shares of
the Company to be applied to such payment, and in the case of clause (iii),
containing a calculation showing the number of Shares with respect to which
rights are being surrendered thereunder and the net number of Shares to be
issued after giving effect to such surrender. No adjustment shall be made for
any dividends on any Shares issuable upon exercise of an Underwriter Warrant.
Upon each surrender of Underwriter Warrants and payment of the Exercise Price as
aforesaid, the Company shall issue and cause to be delivered with all reasonable
dispatch to or upon the written order of the Holder of such Underwriter Warrants
and in such name or names as such Holder may designate. A certificate or
certificates for the number of full Shares so purchased upon the exercise of
such Underwriter Warrants, together with cash, as provided in Section 9 of this
Agreement, in respect of any fractional Shares otherwise issuable upon such
surrender. Such certificate or certificates shall be deemed to have been issued
and any person so designated to be named therein shall be deemed to have become
a holder of record of such Shares as of the date of the surrender of Underwriter
Warrants and payment of the Exercise Price as aforesaid; provided, however, that
if, at the date of surrender of such Underwriter Warrants and payment of such
Exercise Price, the transfer books for the Common Shares or other class of
securities issuable upon the exercise of such Underwriter Warrants shall be
closed, the certificates for the Shares shall be issuable as of the date on
which such books shall next be opened (whether before, on or after the Warrant
Expiration Date) and until such date the Company shall be under no duty to
deliver any certificate for such Shares; provided, further, however, that the
transfer books of record, unless otherwise required by law, shall not be closed
at any one time for a period longer than twenty (20) days. The rights of
purchase represented by the Underwriter Warrants shall be exercisable, at the
election of the Holders thereof, either in full or from time to time in part
and, in the event that any Underwriter Warrant is exercised in respect of less
than all of the Shares issuable upon such exercise at any time prior to the
Warrant Expiration Date, a new Underwriter
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<PAGE> 5
Warrant or Underwriter Warrants will be issued for the remaining number of
Shares specified in the Underwriter Warrant so surrendered.
5. Payment of Taxes. The Company will pay all documentary stamp
taxes, if any, attributable to the issuance of Shares upon the exercise of
Underwriter Warrants; provided, however, that the Company shall not be required
to pay any tax or taxes which may be payable in respect of any transfer involved
in the issue or delivery of any certificates for Shares in a name other than
that of the Holder of Underwriter Warrants in respect of which such Shares are
issued.
6. Mutilated or Missing Warrants. In case any of the Underwriter
Warrants shall be mutilated, lost, stolen or destroyed, the Company may, in its
discretion, issue and deliver in exchange and substitution for and upon
cancellation of the mutilated Underwriter Warrant, or in lieu of and
substitution for the Underwriter Warrant lost, stolen or destroyed, a new
Underwriter Warrant of like tenor and representing an equivalent right or
interest, but only upon receipt of evidence reasonably satisfactory to the
Company of such mutilation, loss, theft or destruction of such Underwriter
Warrant and indemnity, unless mutilated, also reasonably satisfactory to the
Company. An applicant for such substitute Underwriter Warrants shall also comply
with such other reasonable regulations and pay such other reasonable charges as
the Company may prescribe.
7. Reservation of Shares, etc. There have been reserved and the
Company shall at all times keep reserved, out of the authorized and unissued
Common Shares, a number of Common Shares sufficient to provide for the exercise
of the rights of purchase represented by the outstanding Underwriter Warrants.
____________________________________, transfer agent for the Common Shares (the
"Transfer Agent"), and every subsequent transfer agent, if any, for the
Company's securities issuable upon the exercise of the Underwriter Warrants will
be irrevocably authorized and directed at all times until the Warrant Expiration
Date to reserve such number of authorized and unissued Common Shares as shall be
required for such purpose. The Company will keep a copy of this Agreement on
file with the Transfer Agent and with every subsequent transfer agent of the
Company's securities issuable upon the exercise of the Underwriter Warrants. The
Company will supply the Transfer Agent or any subsequent transfer agent with
duly executed certificates for such purpose and will itself provide or otherwise
make available any cash which may be distributable as provided in Section 9 of
this Agreement. All Underwriter Warrants surrendered in the exercise of the
rights thereby evidenced shall be canceled, and such canceled Underwriter
Warrants shall constitute sufficient evidence of the number of Shares that have
been issued upon the exercise of such Underwriter Warrants. No Common Shares
shall be subject to reservation in respect of unexercised Underwriter Warrants
subsequent to the Warrant Expiration Date.
8. Adjustments of Exercise Price and Number of Shares. The
Exercise Price and the number and kind of securities issuable upon exercise of
each Underwriter Warrant shall be subject to adjustment from time to time upon
the happening of certain events, as follows:
(a) In case the Company shall (i) declare a dividend on
its Common Shares in Common Shares or make a distribution of Common
Shares, (ii) subdivide its outstanding Common Shares, (iii) combine its
outstanding Common Shares into a smaller number of
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<PAGE> 6
Common Shares or (iv) issue by reclassification of the Common Shares
other securities of the Company (including any such reclassification in
connection with a consolidation or merger in which the Company is the
continuing corporation), the number of Shares purchasable upon exercise
of each Underwriter Warrant immediately prior thereto shall be adjusted
so that the Holder of each Underwriter Warrant shall be entitled to
receive the kind and number of Shares or other securities of the
Company which he would have owned or have been entitled to receive
after the happening of any of the events described above, had such
Underwriter Warrant been exercised immediately prior to the happening
of such event or any record date with respect thereto. An adjustment
made pursuant to this paragraph (a) shall become effective immediately
after the effective date of such event retroactive to immediately after
the record date, if any, for such event.
(b) In case the Company shall issue rights, options or
warrants to all holders of its Common Shares, without any charge to
such holders, entitling them (for a period expiring within 45 days
after the record date mentioned below in this paragraph (b)) to
subscribe for or to purchase Common Shares at a price per share that is
lower at the record date mentioned below than the then current market
price per Common Share (as defined in paragraph (d) below), the number
of Shares thereafter purchasable upon exercise of each Underwriter
Warrant shall be determined by multiplying the number of Shares
theretofore purchasable upon exercise of each Underwriter Warrant by a
fraction, of which the numerator shall be the number of Common Shares
outstanding on such record date plus the number of additional Common
Shares offered for subscription or purchase, and of which the
denominator shall be the number of Common Shares outstanding on such
record date plus the number of shares which the aggregate offering
price of the total number of Common Shares so offered would purchase at
the then current market price per Common Share. Such adjustment shall
be made whenever such rights, options or warrants are issued, and shall
become effective retroactively to immediately after the record date for
the determination of shareholders entitled to receive such rights,
options or warrants.
(c) In case the Company shall distribute to all holders
of its Common Shares stock other than Common Shares or evidences of its
indebtedness or assets (excluding cash dividends payable out of
consolidated earnings or retained earnings and dividends or
distributions referred to in paragraph (a) above) or rights, options or
warrants or convertible or exchangeable securities containing the right
to subscribe for or purchase Common Shares (excluding those referred to
in paragraph (b) above), then in each case the number of Shares
thereafter issuable upon the exercise of each Underwriter Warrant shall
be determined by multiplying the number of Shares theretofore issuable
upon the exercise of each Underwriter Warrant, by a fraction, of which
the numerator shall be the current market price per Common Share (as
defined in paragraph (d) below) on the record date mentioned below in
this paragraph (c), and of which the denominator shall be the current
market price per Common Share on such record date, less the then fair
value (as determined by the Board of Directors of the Company, whose
determination shall be conclusive) of the portion of the shares of
capital stock other than Common Shares or assets or evidences of
indebtedness so distributed or of such subscription rights, options or
warrants, or of such convertible or exchangeable securities applicable
to one Common
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<PAGE> 7
Share. Such adjustment shall be made whenever any such distribution is
made, and shall become effective on the date of distribution
retroactive to immediately after the record date for the determination
of shareholders entitled to receive such distribution.
(d) For the purpose of any computation under paragraphs
(b) and (c) of this Section 8, the current market price per Common
Share at any date shall be the greater of (i) the average of the daily
closing prices for five (5) consecutive trading days commencing ten
(10) trading days before the date of such computation and (ii) the last
sale price on the date before the date of such computation. The closing
price for each day shall be the last reported sale price regular way
or, in case no such reported sale takes place on such day, the average
of the closing bid and asked prices regular way for such day, in either
case on the principal national securities exchange on which the shares
are listed or admitted to trading, or if they are not listed or
admitted to trading on any national securities exchange, but are traded
in the over-the-counter market, the closing sale price of the Common
Shares or, in case no sale is publicly reported, the average of the
representative closing bid and asked quotations for the Common Shares
on the Nasdaq SmallCap Market or any comparable system, or if the
Common Shares are not listed on the Nasdaq SmallCap Market or a
comparable system, the closing sale price of the Common Shares or, in
case no sale is publicly reported, the average of the closing bid and
asked prices as furnished by two members of the NASD selected from time
to time by the Company for that purpose.
(e) No adjustment in the number of Shares purchasable
hereunder shall be required unless such adjustment would require an
increase or decrease of at least one percent (1%) in the number of
Shares purchasable upon the exercise of each Underwriter Warrant;
provided, however, that any adjustments which by reason of this
paragraph (e) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment, but not later than
three years after the happening of the specified event or events. All
calculations shall be made to the nearest one thousandth of a share.
Anything in this Section 8 to the contrary notwithstanding, the Company
shall be entitled, but shall not be required, to make such changes in
the number of Shares purchasable upon the exercise of each Underwriter
Warrant, in addition to those required by this Section 8, as it in its
discretion shall determine to be advisable in order that any dividend
or distribution in shares of Common Shares, subdivision,
reclassification or combination of Common Shares, issuance of rights,
warrants or options to purchase Common Shares, or distribution of
shares of capital stock other than Common Shares, evidences of
indebtedness or assets (other than distributions of cash out of
consolidated earnings or retained earnings) or convertible or
exchangeable securities hereafter made by the Company to the holders of
its Common Shares, shall not result in any tax to the holders of its
Common Shares or securities convertible into Common Shares.
(f) Whenever the number of Shares purchasable upon the
exercise of each Underwriter Warrant is adjusted, as herein provided,
the Exercise Price shall be adjusted by multiplying the Exercise Price
in effect immediately prior to such adjustment by a fraction, of which
the numerator shall be the number of Shares purchasable upon the
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<PAGE> 8
exercise of each Underwriter Warrant immediately prior to such
adjustment, and of which the denominator shall be the number of Shares
so purchasable immediately thereafter.
(g) For the purpose of this Section 8, the term "Common
Shares" shall mean (i) the class of stock designated as the Common
Shares of the Company at the date of this Agreement or (ii) any other
class of stock resulting from successive changes or reclassifications
of such shares consisting solely of changes in par value, or from no
par value to par value, or from par value to no par value. In the event
that at any time, as a result of an adjustment made pursuant to
paragraph (a) above, the Holders shall become entitled to purchase any
shares of capital stock of the Company other than Common Shares,
thereafter the number of such other shares so purchasable upon exercise
of each Underwriter Warrant and the Exercise Price of such shares shall
be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the
Shares contained in paragraphs (a) through (f), inclusive, and
paragraphs (h) through (m), inclusive, of this Section 8, and the
provisions of Sections 4, 5, 7 and 10, with respect to the Shares,
shall apply on like terms to any such other shares.
(h) Upon the expiration of any rights, options, warrants
or conversion rights or exchange privileges, if any thereof shall not
have been exercised, the Exercise Price and the number of Common Shares
purchasable upon the exercise of each Underwriter War-rant shall, upon
such expiration, be readjusted and shall thereafter be such as it would
have been had it originally been adjusted (or had the original
adjustment not been required, as the case may be) as if (i) the only
Common Shares so issued were the Common Shares, if any, actually issued
or sold upon the exercise of such rights, options, warrants or
conversion rights or exchange privileges and (ii) such Common Shares,
if any, were issued or sold for the consideration actually received by
the Company upon such exercise plus the aggregate consideration, if
any, actually received by the Company for the issuance, sale or grant
of all of such rights, options, warrants or conversion rights or
exchange privileges whether or not exercised; provided, however, that
no such readjustment shall have the effect of increasing the Exercise
Price by an amount in excess of the amount of the adjustment initially
made in respect to the issuance, sale or grant of such rights, options,
warrants or conversion rights or exchange privileges.
(i) The Company may, at its option, at any time during
the term of the Underwriter Warrants, reduce the then current Exercise
Price to any amount deemed appropriate by the Board of Directors of the
Company.
(j) Whenever the number of Shares issuable upon the
exercise of each Underwriter Warrant or the Exercise Price of such
Shares is adjusted, as herein provided, the Company shall promptly mail
by first class mail postage prepaid to each Holder notice of such
adjustment or adjustments. The Company shall retain a firm of
independent public accountants (who may be the regular accountants
employed by the Company) to make any computation required by this
Section 8 and shall cause such accountants to prepare a certificate
setting forth the number of Shares issuable upon the exercise of each
Underwriter Warrant and the Exercise Price of such Shares after such
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<PAGE> 9
adjustment, setting forth a brief statement of the facts requiring such
adjustment and setting forth the computation by which such adjustment
was made. Such certificate shall be conclusive on the correctness of
such adjustment and each Holder shall have the right to inspect such
certificate during reasonable business hours.
(k) Except as provided in this Section 8, no adjustment
in respect of any dividends shall be made during the term of the
Underwriter Warrants or upon the exercise of the Underwriter Warrants.
(l) In case of any consolidation of the Company with or
merger of, the Company with or into another corporation or in case of
any sale or conveyance to another corporation of the property of the
Company as an entirety or substantially as an entirety, the Company or
such successor or purchasing corporation (or an affiliate of such
successor or purchasing corporation), as the case may be, agrees that
each Holder shall have the right thereafter upon payment of the
Exercise Price in effect immediately prior to such action to purchase
upon exercise of each Underwriter Warrant the kind and amount of shares
and other securities and property (including cash) which he would have
owned or have been entitled to receive after the happening of such
consolidation, merger, sale or conveyance had such Underwriter Warrant
been exercised immediately prior to such action. The provisions of this
paragraph (1) shall similarly apply to successive consolidations,
mergers, sales or conveyances.
(m) Notwithstanding any adjustment in the Exercise Price
or the number or kind of shares purchasable upon the exercise of the
Underwriter Warrants pursuant to this Agreement, certificates for
Underwriter Warrants issued prior or subsequent to such adjustment may
continue to express the same price and number and kind of Shares as are
initially issuable pursuant to this Agreement.
9. Fractional Interests. The Company shall not be required to
issue fractions of Shares on the exercise of Underwriter Warrants. If more than
one Underwriter Warrant shall be presented for exercise in full at the same time
by the same Holder, the number of Shares which shall be issuable upon the
exercise thereof shall be computed on the basis of the number of Shares issuable
on exercise of the Underwriter Warrants so presented. If any fraction of a Share
would, except for the provisions of this Section 9, be issuable on the exercise
of any Underwriter Warrant (or specified portions thereof), the Company shall
purchase such fraction for an amount in cash equal to the same fraction of the
current market price per Common Share (determined as provided in the second
sentence of Section 8(d) of this Agreement) on the date of exercise.
10. Registration Rights.
(a) Demand Registration Rights. The Company covenants and
agrees with the Underwriter and any other or subsequent Holders of the
Registrable Securities (as defined in paragraph (e) of this Section 10) that,
upon written request of the then Holder(s) of at least a majority of the
aggregate of the Registrable Securities which were originally issued on the date
hereof to the Underwriter or its designees, made at any time within the period
commencing one year and ending five years after the Effective Date, the Company
will file as promptly as
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<PAGE> 10
practicable and, in any event, within 45 days after receipt of such written
request, at its sole expense, no more than once, a post-effective amendment (the
"Amendment") to the Registration Statement, or a new Registration Statement or a
Regulation A Offering Statement (an "Offering Statement") under the Act,
registering or qualifying the Registrable Securities for sale. Within fifteen
(15) days after receiving any such notice, the Company shall give notice to the
other Holders of the Registrable Securities advising that the Company is
proceeding with such Amendment, Registration Statement or Offering Statement and
offering to include therein the Registrable Securities of such Holders. The
Company shall not be obligated to any such other Holder unless such other Holder
shall accept such offer by notice in writing to the Company within ten (10) days
thereafter. No other securities of the Company shall be entitled to be included
in such Amendment, Registration Statement or Offering Statement. The Company
will use its best efforts, through its officers, directors, auditors and counsel
in all matters necessary or advisable, to file and cause to become effective
such Amendment, Registration Statement or Offering Statement as promptly as
practicable and for a period of two years thereafter to reflect in the
Amendment, Registration Statement or Offering Statement financial statements
which are prepared in accordance with Section 10(a)(3) of the Act and any facts
or events arising that, individually, or in the aggregate, represent a
fundamental and/or material change in the Amendment, Registration Statement or
Offering Statement to enable information set forth in Amendment, Registration
Statement or Offering Statement to enable any Holders of the Underwriter
Warrants to either sell such Underwriter Warrants or to exercise such
Underwriter Warrants and sell Shares, or to enable any holders of Shares to sell
such Shares, during said two-year period. The Holders may sell the Registrable
Securities pursuant to the Amendment, Registration Statement or the Offering
Statement without exercising the Underwriter Warrants. If any registration
pursuant to this paragraph (a) is an underwritten offering, the Holders of a
majority of the Registrable Securities to be included in such registration shall
be entitled to select the underwriter or managing underwriter (in the case of a
syndicated offering) of such offering.
(b) Piggyback Registration Rights. The Company covenants
and agrees with the Underwriter and any other Holders or subsequent Holders of
the Registrable Securities that if, at any time within the period commencing one
year and ending five years after the Effective Date, it proposes to file a
Registration Statement or Offering Statement with respect to any class of
security (other than in connection with an offering to the Company's employees)
under the Act in a primary registration on behalf of the Company and/or in a
secondary registration on behalf of holders of such securities and the
registration form or Offering Statement to be used may be used for registration
of the Registrable Securities, the Company will give prompt written notice
(which. in the case of a Registration Statement or notification pursuant to the
exercise of demand registration rights other than those provided in Section
10(a) of this Agreement, shall be within ten (10) business days after the
Company's receipt of notice of such exercise, in any event, shall be at least 45
days prior to such filing) to, the Holders of Registrable Securities (regardless
of whether some of the Holders shall have theretofore availed themselves of the
right provided in Section 10(a) of this Agreement) at the addresses appearing on
the records of the Company of its intention to file a Registration Statement or
Offering Statement and will offer to include in such registration statement or
Offering Statement to the maximum extent possible, and limited, in the case of a
Regulation A offering, to the amount of the available exemption, subject to
sub-paragraphs (i) and (ii) of this paragraph (b), such number of Registrable
Securities with respect to
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<PAGE> 11
which the Company has received written requests for inclusion therein within ten
(10) days after the giving of notice by the Company. All registrations requested
pursuant to this Section 10(b) are referred to herein as "Piggyback
Registrations," All Piggyback Registrations pursuant to this Section 10(b) will
be made solely at the Company's expense. This paragraph is not applicable to a
Registration Statement filed by the Company with the Commission on Forms S-4 or
S-8 or any successor forms.
(i) Priority on Primary Registrations. If a Piggyback
Registration includes an underwritten primary registration on behalf of
the Company and the underwriter(s) for the offering being registered by
the Company shall determine in good faith and advise the Company in
writing that in its/their opinion the number of Registrable Securities
requested to be included in such registration exceeds the number that
can be sold in such offering without materially adversely affecting the
distribution of such securities by the Company, the Company will
include in such registration (A) first, the securities that the Company
proposes to sell and (B) second, the Registrable Securities requested
to be included in such registration, apportioned pro rata among the
Holders of Registrable Securities and (C) third, securities of the
holders of other securities requesting registration.
(ii) Priority on Secondary Registrations. If a Piggyback
Registration consists only of an underwritten secondary registration on
behalf of holders of securities of the Company (other than pursuant to
Section 10(a)), and the underwriter(s) for the offering being
registered by the Company advise the Company in writing that in
its/their opinion the number of Registrable Securities requested to be
included in such registration exceeds the number which can be sold in
such offering without materially adversely affecting the distribution
of such securities by the Company, the Company will include in such
registration (A) first, the securities requested to be included therein
by the holders requesting such registration and the Registrable
Securities requested to be included in such registration above, pro
rata, among all such holders on the basis of the number of shares
requested to be included by each such holder and (B) second, other
securities requested to be included in such registration.
Notwithstanding the foregoing if any such underwriter shall determine
in good faith and advise the Company in writing that the distribution of the of
the Registrable Securities requested to be included in the registration
concurrently with the securities being registered by the Company would
materially adversely affect the distribution of such securities by the Company,
then the Holders of such Registrable Securities shall delay their offering and
We for such period ending on the earliest of (1) 90 days following the effective
date of the Company's registration statement, (2) the day upon which the
underwriting syndicate, if any, for such offering shall have been disbanded or,
(3) such date as the Company, managing underwriter and Holders of Registrable
Securities shall otherwise agree. In the event of such delay, the Company shall
file such supplements, post-effective amendments and take any such other steps
as may be necessary to permit such Holders to Take their proposed offering and
sale for a period of 120 days immediately following the end of such period of
delay. If any party disapproves of the terms of any, such underwriting, it may
elect to withdraw therefrom by written notice to the Company, the underwriter,
and Underwriter. Notwithstanding the foregoing, the Company shall not be
required
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<PAGE> 12
to file a registration statement to include Shares pursuant to this Section
10(b) if an opinion of independent counsel, reasonably satisfactory to counsel
for the Company and counsel for Underwriter, that the Shares proposed to be
disposed of may be transferred pursuant to the provisions of Rule 144 under the
Act, shall have been delivered to counsel for the Company.
(c) Other Registration Rights. In addition to the rights
above provided, the Company will cooperate with the then Holders of the
Registrable Securities in preparing and signing any Registration
Statement or Offering Statement, in addition to the Registration
Statements and Offering Statements discussed above, required in order
to sell or transfer the Registrable Securities and will supply all
information required therefor, but such additional Registration
Statement or Offering Statement shall be at the then Holders' cost, and
expense; provided, however, that if the Company elects to register or
qualify additional Common Shares, the cost and expense of such
Registration Statement or Offering Statement will be pro rated between
the Company and the Holders of the Registrable Securities according to
the aggregate sales price of the securities being issued,
Notwithstanding the foregoing, the Company will not be required to file
a Registration Statement or Offering, Statement at a time when the
audited financial statements required to be included therein are not
available, which time shall be limited to the period commencing 45 days
after the end of a fiscal year and ending 90 days after the end of such
fiscal year.
(d) Action to be Taken by the Company. In connection with
the registration of Registrable Securities in accordance with
paragraphs (a), (b) or (c) of this Section 10, the Company agrees to:
(i) Bear the expenses of any registration or
qualification under paragraphs (a) or (b) of this Section 10,
including, but not limited to, legal accounting, and printing
fees; provided, however, that in no event shall the Company be
obligated to pay (A) any fees and disbursements of special
counsel for Holders of Registrable Securities, or (B) any
underwriters' discount or commission in respect of such
Registrable Securities, or (C) upon the exercise of and demand
registration right provided for in paragraph (a) of this
Section 10, the cost of and liability or similar insurance
required by an underwriter, to the extent that such costs are
attributable solely to the offering of such Registrable
Securities, payment of which shall, in each case, be the sole
responsibility of the Holders of the Registrable Securities;
(ii) Use its best efforts to register or qualify
the Registrable Securities for offer or sale under state
securities or Blue Sky laws of such jurisdictions as
Underwriter shall reasonably request arid to do any and all
other acts and things which may be necessary or advisable to
enable the holders to consummate the proposed sale, transfer
or other disposition of such securities in any jurisdiction;
and
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<PAGE> 13
(iii) Enter into a cross-indemnity agreement, in
customary form, with each underwriter, if any, and each holder
of securities included in such Amendment, Registration
Statement or Offering Statement,
(e) For purposes of this Section 10, (i) the term
"Holder" shall include holders of Shares, and (ii) the term "Registrable
Securities" shall mean the Underwriter Warrants and the Shares, issued upon
exercise of the Underwriter Warrants.
11. Notices to Holders.
(a) Nothing contained in this Agreement or in any of the
Underwriter Warrants shall be construed as conferring upon the Holders thereof
the right to vote or to receive dividends or to consent or to receive notice as
shareholders in respect of the meetings of shareholders or the election of
directors of the Company or any other matter, or any rights whatsoever as
shareholders of the Company; provided, however, that in the event that a meeting
of shareholders shall be called to consider and take act ion on a proposal for
the voluntary dissolution of the Company, other than in connection with a
consolidation, mercer or sale of all, or substantially all, or its property,
assets, business and good will as an entirety. then and in that event the
Company shall cause a notice thereof to be sent by first-class mail, postage
prepaid, at least twenty (20) days prior to the date filed as a record date or
the date of closing, the transfer books in relation to such meeting, to each
registered Holder of Underwriter Warrants at such Holder's address appearing in
the Underwriter Warrant Register; but failure to mail or to receive such notice
or any defect therein or in the mailing thereof shall not affect the validity of
any action taken in connection with such voluntary dissolution. If such notice
shall have been so given and if such a voluntary dissolution shall be authorized
at such meeting or any adjournment thereof, then from and after the date on
which such voluntary dissolution shall have been duly authorized by the
shareholders, the purchase rights represented by the Underwriter Warrants and
all other rights with respect thereto shall cease and terminate.
(b) In the event the Company intends to make any
distribution on its Common Shares (or other securities which may be issuable in
lieu thereof upon the exercise of Underwriter Warrants), including, without
limitation, any such distribution to be made in connection with a consolidation
or merger in which the Company is the continuing corporation, or to issue
subscription rights or warrants to holders of its Common Shares, the Company
shall cause a notice of its intention to make such distribution to be sent by
first-class mail, postage prepaid, at least twenty (20) days prior to the date
fixed as a record date or the date of closing the transfer books in relation to
such distribution, to each registered Holder of Underwriter Warrants at such
Holder's address appearing, on the Underwriter Warrant Register, but failure to
mail or to receive such notice or any defect therein or in the mailing thereof
shall not affect the validity of any action taken in correction with such
distribution.
12. Notices. Any notice pursuant to this Agreement to be given or
made by the Holder of any Underwriter Warrant and/or the holder of any Share to
or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed as follows or to such other address as the
Company may designate by notice given in accordance with this Section 12, to the
Holders of Underwriter Warrants and/or the holders of Shares:
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<PAGE> 14
Visual Data Corporation
1291 S.W. 29th Avenue
Pompano Beach, Florida 33069
Attention: Randy S. Selman,
President & CEO
with a copy to: Atlas, Perlman, Trop & Borkson, P.A.
Suite 1900
200 East Las Olas Boulevard
Fort Lauderdale, Florida 33301
Attention: Joel D. Mayerson, Esq.
Notices or demands authorized by this Agreement to be given or made by
the Company to or on the Holder of any Underwriter Warrant and/or the holder of
any Share shall be sufficiently given or made (except as otherwise provided in
this Agreement) if sent by first-class mail, postage prepaid, addressed to such
Holder or such holder of Shares at the address of such Holder or such holder of
Shares as shown on the Underwriter Warrant Register or the books of the Company,
as the case may be.
13. Governing Law. THIS AGREEMENT AND EACH UNDERWRITER WARRANT
ISSUED HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF CALIFORNIA WITHOUT REFERENCE TO PRINCIPLES OF
CONFLICT OF LAWS. The Company hereby agrees to accept service of process by
notice given to it pursuant to the provisions of Section 12.
14. Counterparts. This Agreement may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original; but
such counterparts together shall constitute but one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day, month and year first above written.
(Corporate Seal)
Attest: VISUAL DATA CORPORATION
By:
- ----------------------------- -----------------------------
Randy S. Selman
Secretary President & CEO
13
<PAGE> 15
Attest: CRUTTENDEN ROTH INCORPORATED
By:
- ----------------------------- -----------------------------
Name:
Title:
Attest: H.C. WAINWRIGHT & CO., INC.
By:
- ----------------------------- -----------------------------
Name:
Title:
14
<PAGE> 16
EXHIBIT A
No.___________ 160,000 Warrants
VOID AFTER 5:00 P.M. NEW YORK CITY TIME
ON _____________, 2004
VISUAL DATA CORPORATION
Warrant Certificate
THIS CERTIFIES THAT for value received Cruttenden Roth Incorporated,
H.C. Wainwright & Co., Inc. or registered assigns, is the owner of the number of
warrants set forth above, each of which entities the owner thereof to purchase
at any time from _____________, 2000, until 5:00 p.m., New York City time on
______________, 2004 (the "Warrant Expiration Date"), one fully paid and
nonassessable Common Share, without par value (the "Common Shares"), of Visual
Data Corporation, a Florida corporation (the "Company"), at the purchase price
of $______ per share (the "Exercise Price") upon presentation and surrender of
this Warrant Certificate with the Form of Election to Purchase duly executed,
The number of Warrants evidenced by this Warrant Certificate (and the number of
shares which may be purchased upon exercise thereto set forth above, and the
Exercise Price per share set forth above, are the number and Exercise Price as
of the date of original issuance of the Warrants, based on the Common Shares of
the Company as constituted at such date. As provided in the Warrant Agreement
referred to below, the Exercise Price and the number or kind of shares which may
be purchased upon the exercise of the Warrants evidenced by this Warrant
Certificate are, upon the happening of certain events, subject to modification
and adjustment.
This Warrant Certificate is subject to, and entitled to the benefits
of, all of the terms, provisions and conditions of an agreement, dated as of
______________, 1999 (the "Warrant Agreement"), between the Company and
Cruttenden Roth Incorporated, which Warrant Agreement is hereby incorporated
herein by reference and made a part hereof and to which Warrant Agreement
reference is hereby made for a full description of the rights, limitations of
rights, duties and immunities hereunder of the Company and the holders of the
Warrant Certificates. Copies of the Warrant Agreement are on file at the
principal office of the Company.
This Warrant Certificate, with or without other Warrant Certificates,
upon surrender at the principal office of the Company, may be exchanged for
another Warrant Certificate or Warrant Certificates of like tenor and date
evidencing Warrants entitling the holder to purchase a like aggregate number of
Common Shares as the Warrants evidenced by the Warrant Certificate or Warrant
Certificates surrendered entitled such holder to purchase. If this Warrant
Certificate shall be exercised in part, the holder hereof shall be entitled to
receive upon surrender hereof another Warrant Certificate or Warrant
Certificates for the number of whole Warrants not exercised.
A-1
<PAGE> 17
No fractional Common Shares will be issued upon the exercise of any
Warrant or Warrants evidenced hereby, but in lieu thereof a cash payment will be
made, as provided in the Warrant Agreement.
No holder of this Warrant Certificate shall be entitled to vote or
receive dividends or be deemed the holder of Common Shares, any other securities
of the Company which may at any time be issuable on the exercise hereof for any
purpose, nor shall anything contained in the Warrant Agreement or herein be
construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action (whether upon any recapitalization,
issue of stock, reclassification of stock, change of par value or change of
stock to no par value, consolidation, merger, conveyance, or otherwise) or,
except as provided in the Warrant Agreement, to receive notice of meetings, or
to receive dividends or subscription rights or otherwise, until the Warrant or
Warrants evidenced by this Warrant Certificate shall have been exercised and the
shares shall have become deliverable as provided in the Warrant Agreement.
If this Warrant shall be surrendered for exercise within any period
during which the transfer books for the Company's Common Shares or other class
of stock purchasable upon the exercise of this Warrant are closed for any
purpose, the Company shall not be required to make delivery of certificates for
shares purchasable upon such exercise until the date of the reopening of said
transfer books.
IN WITNESS WHEREOF, Visual Data Corporation, inc. has caused the
signature (or facsimile signature) of its President and its Secretary to be
printed hereon and its corporate seal (or facsimile) to be printed hereon.
Dated:________________, 1999
VISUAL DATA CORPORATION
By:
----------------------------
Randy S. Selman
President & CEO
(Corporate Seal)
Attest:
- ----------------------------------------
Secretary
A-2
<PAGE> 18
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise the Warrant Certificate.)
TO:
----------------------------------------------
The undersigned hereby irrevocably elects to exercise Warrants
represented by this Warrant Certificate to purchase the Common Shares issuable
upon the exercise of such Warrants and requests that certificates for such
shares be issued in the name of: (Please insert social security or other
identifying number)
----------------------------------------------
----------------------------------------------
----------------------------------------------
(Please print name and address)
If such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, a new Warrant Certificate for the balance remaining of such
Warrants shall be registered in the name of and delivered to:
Please insert social security number or other identifying number
----------------------------------------------
----------------------------------------------
----------------------------------------------
(Please print name and address)
Dated:
------------------------------------
---------------------------------
Signature
(signature must conform in
all respects to name of
holder as specified on the
face of this Warrant
Certificate)
Signature Guaranteed:
- ------------------------------
A-3
<PAGE> 19
FORM OF
ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
Warrant Certificates.)
FOR VALUE RECEIVED, _____________________ hereby sells, assigns and
transfers unto ______________________________________ this Warrant Certificate,
together with all right, title and interest herein, and does hereby irrevocably
constitute and appoint ________________, to transfer the within Warrant
Certificate on the books of the within-named Company, with full power of
substitution.
Dated:
------------------------------
Signature:
------------------------------
Signature Guaranteed:
- ------------------------------
NOTICE
The signature of the foregoing Assignment must correspond to the name
as written upon the face of this Warrant Certificate in every particular,
without alteration or enlargement or any change whatsoever.
A-4
<PAGE> 1
EXHIBIT-4(F)
CRUTTENDEN ROTH INCORPORATED
24 CORPORATE PLAZA
NEWPORT BEACH, CALIFORNIA 92660
CONSULTING AGREEMENT
______, 1999
Visual Data Corporation
1291 S.W. 29th Avenue
Pompano Beach, Florida 33069
Attn: Mr. Randy S. Selman
Chairman of the Board, President and Chief Executive Officer
Dear Sirs:
This will confirm the arrangements, terms and conditions pursuant to
which Cruttenden Roth Incorporated (the "Consultant") has been retained to serve
as consultant and advisor to Visual Data Corporation, a Florida corporation (the
"Company"), for the term set forth in Section 3 below. The undersigned hereby
agree to the following terms and conditions:
1. ENGAGEMENT. The Company hereby retains the Consultant
to perform consulting and advisory services, and the Consultant hereby accepts
such retention and agrees to do and perform consulting and advisory services,
upon the terms and conditions set forth herein.
2. DUTIES OF THE CONSULTANT.
(A) CONSULTING SERVICES. The Consultant will
provide such general financial consulting services and advice pertaining to the
Company's business affairs (as further set forth below), as and when the Company
may from time to time reasonably request upon reasonable notice. Without
limiting the generality of the foregoing, the Consultant will assist the Company
in developing, studying and evaluating financing and capital structure, mergers
and acquisitions activity and corporate financing proposals, prepare reports and
studies thereon when advisable, and assist in negotiations and discussions
pertaining thereto.
(B) FINANCING. The Consultant will assist and
represent the Company in obtaining both short and long-term financing, when so
requested by the Company in the Company's sole discretion. The Consultant will
be entitled to additional compensation under such terms as may be agreed to by
the parties in connection therewith.
(C) WALL STREET LIAISON. The Consultant will,
when appropriate, arrange meetings between representatives of the Company and
individuals and financial institutions in the investment community, such as
security analysts, portfolio managers and market makers.
<PAGE> 2
The services described in this Section 2 shall be rendered by the
Consultant in consultation with the Company at such time and place and in such
manner (whether by conference, telephone, letter or otherwise) as the Consultant
and the Company may reasonably determine.
3. TERM. The term of this Agreement shall commence on
the date hereof and continue for a period of two years from the date hereof (the
"Term").
4. COMPENSATION. As compensation in full for the
Consultant's services hereunder during the Term, the Company shall pay to the
Consultant the sum of $200,000, which amount shall be paid at the closing of the
public offering contemplated by the Underwriting Agreement, dated _______, 1999,
between the Company and the Consultant, as representative of the Underwriters
identified therein.
5. EXPENSES. The Company shall pay and reimburse the
Consultant for all reasonable out-of-pocket expenses incurred by the Consultant
and approved in advance in writing by the Company in the performance of its
services under this Agreement.
6. RELATIONSHIP. Nothing herein shall constitute the
Consultant as an employee or agent of the Company. Except as might hereinafter
be expressly agreed, the Consultant shall not have the authority to obligate or
commit the Company in any manner whatsoever.
7. CONFIDENTIALITY. Except in the course of the
performance of its duties hereunder, and in such case, only upon express written
consent of the Company, the Consultant agrees that it shall not disclose any
trade secrets, know-how, or other proprietary information not in the public
domain learned as a result of this Agreement unless and until such information
becomes generally known or is in the public domain.
8. FINDER'S OR BROKER'S FEES. The Company acknowledges
and agrees that, with the written agreement and at the request of the Company,
the Consultant may act as a finder or financial consultant in various business
transactions in which the Company or any of its subsidiaries may be involved,
such as mergers, acquisitions, joint ventures or investments and that the
Consultant may be entitled to receive a finder's fee or brokerage commission or
other rights, profits or payments in connection with such transactions provided,
however, that the Company and the Consultant have entered into an agreement
prior thereto regarding the services to be performed by and the fee to be paid
to the Consultant.
9. PERMITTED ACTIVITIES. Nothing contained in this
Agreement shall limit or restrict the right of the Consultant or of any officer,
director, shareholder, employee, agent or representative of the Consultant to be
a partner, owner, director, officer, employee, agent or representative of, or
engage in, any other business, whether of a similar nature or not, or limit or
restrict the right of the Consultant to render services of any kind to any other
corporation, firm, individual or other entity.
<PAGE> 3
10. ASSIGNMENT AND TERMINATION. This Agreement shall not
be assignable by any party except to a successor to all or substantially all of
the business of either party without the prior written consent of the other
party, which consent may be arbitrarily withheld by the party whose consent is
required.
11. NOTICES. All notices hereunder shall be in writing
and shall be validly given, made or served if in writing and delivered in person
or when received by facsimile transmission, or five days after being sent first
class certified or registered mail, postage prepaid or one day after being sent
by nationally recognized overnight courier to the party for whom intended at the
addresses as set forth above or at such other address as may be provided.
12. GOVERNING LAW; SUBMISSION TO JURISDICTION. This
agreement shall be interpreted, construed, governed and enforced according to
the laws of the State of California without giving effect to the conflicts of
law rules thereof. The Company and the Consultant hereby agree that any action,
proceeding or claim against it arising out of, or relating in any way to, this
Agreement shall be brought and enforced in the courts of the State of California
or of the United States of America in California, and irrevocably submits to
such jurisdiction, which jurisdiction shall be exclusive. The Company and the
Consultant hereby irrevocably waive any objection to such exclusive jurisdiction
or inconvenient forum and also hereby irrevocably waive any right or claim to
trial by jury in connection with any such action, proceeding or claim.
13. AMENDMENTS. No amendment or modification of the terms
or conditions of this Agreement shall be valid unless in writing and signed by
the parties hereto.
14. INDEMNIFICATION. As a consultant for the Company, the
Consultant must at times rely upon the information supplied to the Consultant by
the Company's officers, directors, agents and employees as to accuracy and
completeness. Therefore, the Company agrees to indemnify, hold harmless and
defend the Consultant, its directors, officers, employees and agents from and
against any and all claims, actions, proceedings, losses, liabilities, costs and
expenses (including without limitation, reasonable attorneys' fees) incurred by
any of them in connection with or as a result of any inaccuracy, incompleteness
or omission of information given to the Consultant in writing by the Company's
officers, directors, agents or employees in connection with the rendering of
services by the Consultant requested by the Company hereunder.
<PAGE> 4
15. COUNTERPARTS. This Agreement may be executed in one
or more counterparts which, taken together, shall constitute one and the same
instrument, and this Agreement shall become effective when one or more
counterparts have been signed by each of the parties. It shall not be necessary
in making proof of this Agreement or any counterpart hereof to account for more
than one such counterpart.
Very truly yours,
CRUTTENDEN ROTH INCORPORATED
By:
----------------------------
Name:
Title:
AGREED AND ACCEPTED:
VISUAL DATA CORPORATION
By:
------------------------------
Randy S. Selman
Chairman of the Board, President and
Chief Executive Officer
<PAGE> 1
Exhibit 5 & 23(d)
ATLAS, PEARLMAN, TROP & BORKSON, P.A.
200 East Las Olas Boulevard, Suite 1900
Fort Lauderdale, Florida 33301
July 7, 1999
Visual Data Corporation
1291 S.W. 29th Avenue
Pompano Beach, Florida 33069
RE: VISUAL DATA CORPORATION (THE "COMPANY") - REGISTRATION STATEMENT ON
FORM S-1 (FILE NO. 333-79887) (THE "REGISTRATION STATEMENT")
Gentlemen:
This opinion is submitted pursuant to the applicable rules of the
Securities and Exchange Commission with respect to the public offering by the
Company of 1,600,000 shares of Common Stock, $.0001 par value ("Common Stock")
and 700,000 shares of Common Stock for sale by the holders thereof (the "Selling
Shareholders") for resale by the Selling Shareholders (collectively the
"Securities"), as set forth in the Registration Statement, including up to
300,000 shares of Common Stock issuable in connection with the Underwriters'
over-allotment option.
In connection therewith, we have examined and relied upon original,
certified, conformed, photostat or other copies of (i) the Articles of
Incorporation, as amended, and Bylaws of the Company; (ii) resolutions of the
Board of Directors of the Company authorizing the offering and the issuance of
the Common Stock and related matters; (iii) the Registration Statement and the
exhibits thereto; and (iv) such other matters of law as we have deemed necessary
for the expression of the opinion herein contained. In all such examinations, we
have assumed the genuineness of all signatures on original documents, and the
conformity to originals or certified documents of all copies submitted to us as
conformed, photostat or other copies. In passing upon certain corporate records
and documents of the Company, we have necessarily assumed the correctness and
completeness of the statements made or included therein by the Company, and we
express no opinion thereon. As to the various questions of fact material to this
opinion, we have relied, to the extent we deemed reasonably appropriate, upon
representations or certificates of officers or directors of the Company and upon
documents, records and instruments furnished to us by the Company, without
independently checking or verifying the accuracy of such documents, records and
instruments.
<PAGE> 2
Visual Data Corporation
July 7, 1999
Page 2
Based upon the foregoing, we are of the opinion that:
1. The Company is a corporation duly organized and validly existing
under the laws of the State of Florida; and
2. When (i) the Registration Statement has become effective under the
Securities Act of 1933, as amended, (ii) the Securities have been
issued and sold as contemplated in the Registration Statement and
the Underwriting Agreement referred to therein, and (iii) the
Securities have been duly executed, delivered and paid for, such
Securities will be legally issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to use our name under the caption "Legal Matters" in
the prospectus comprising part of the Registration Statement.
Sincerely,
ATLAS, PEARLMAN, TROP & BORKSON, P.A.
/s/ Atlas, Pearlman, Trop & Borkson, P.A.
-----------------------------------------
<PAGE> 1
EXHIBIT 23(a)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use of our
report (and to all references to our firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
FORT LAUDERDALE, FLORIDA
JULY 6, 1999
<PAGE> 1
EXHIBIT 23(b)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in this Registration Statement of our report dated
December 3, 1996 relating to the consolidated financial statements of Visual
Data Corporation and to the reference to our Firm under the caption "Experts" in
the Prospectus.
/s/ Goldstein Lewin & Co.
GOLDSTEIN LEWIN & CO.
Boca Raton, Florida
July 6, 1999
<PAGE> 1
EXHIBIT 23(c)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Visual Data Corporation
on Form S-1 of our reports dated November 6, 1998, appearing in the Prospectus,
which is part of this Registration Statement, and to the reference to us under
the heading "Experts" in such Prospectus.
/s/ Burr, Pilger & Mayer
San Francisco, California
July 7, 1999
